chapter 2 home affairs bureau social welfare department ... · 40 tax-exempt charities suggested...

CHAPTER 2

Home Affairs BureauSocial Welfare DepartmentHome Affairs Department

Food and Environmental Hygiene DepartmentLands Department

Monitoring of charitablefund-raising activities

Audit CommissionHong Kong3 April 2017

This audit review was carried out under a set of guidelines tabled inthe Provisional Legislative Council by the Chairman of the PublicAccounts Committee on 11 February 1998. The guidelines wereagreed between the Public Accounts Committee and the Director ofAudit and accepted by the Government of the Hong Kong SpecialAdministrative Region.

Report No. 68 of the Director of Audit contains 8 Chapters whichare available on our website at http://www.aud.gov.hk

Audit Commission26th floor, Immigration Tower7 Gloucester RoadWan ChaiHong Kong

Tel : (852) 2829 4210Fax : (852) 2824 2087E-mail : [email protected]

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MONITORING OF CHARITABLEFUND-RAISING ACTIVITIES

Contents

Paragraph

EXECUTIVE SUMMARY

PART 1: INTRODUCTION

Audit review

General response from the Government

Acknowledgement

PART 2: GOVERNMENT’S EFFORTS TO PROMOTETRANSPARENCY AND ACCOUNTABILITY OFCHARITABLE FUND-RAISING ACTIVITIES

Voluntary adoption of best practices for organisingfund-raising activities by charities

Usage of the one-stop finder

Audit recommendations

Response from the Government

PART 3: ADMINISTRATION OF PUBLIC SUBSCRIPTIONPERMITS FOR CHARITABLE FUND-RAISINGACTIVITIES

Processing of applications

Compliance with permit conditions

1.1 – 1.9

1.10 – 1.11

1.12 – 1.13

1.14

2.1 – 2.6

2.7 – 2.15

2.16 – 2.18

2.19

2.20 – 2.23

3.1 – 3.7

3.8 – 3.10

3.11 – 3.14

— ii —

Paragraph

Monitoring of charitable fund-raising activities underpublic subscription permits



PART 4: ADMINISTRATION OF LOTTERY LICENCES FORCHARITABLE FUND-RAISING ACTIVITIES

Monitoring of charitable lottery events



PART 5: ADMINISTRATION OF TEMPORARY HAWKERLICENCES FOR FUND-RAISING ACTIVITIESINVOLVING ON-STREET SELLING

Monitoring of fund-raising activitiesinvolving on-street selling



PART 6: WAY FORWARD

Law Reform Commission Report on Charities

Government’s follow-up actions onthe Law Reform Commission’s recommendations



3.15 – 3.24

3.25

3.26 – 3.27

4.1 – 4.3

4.4 – 4.13

4.14

4.15

5.1 – 5.5

5.6 – 5.13

5.14

5.15

6.1

6.2 – 6.3

6.4 – 6.10

6.11

6.12

— iii —

Appendices Page

A : Reference Guide on Best Practices forCharitable Fund-raising Activities (extract)

B : Guidance Note on Internal Financial Controls forCharitable Fund-raising Activities (extract)

C : Social Welfare Department: Organisation chart (extract)(31 December 2016)

D : Major expenses of 45 public subscription permit activitiesorganised by 8 permittees with percentages of expenses togross proceeds exceeding 40%

E : Sample of the income and expenditure account fora general charitable fund-raising activity covered bya public subscription permit

F : Home Affairs Department: Organisation chart (extract)(31 December 2016)

G : Food and Environmental Hygiene Department:Organisation chart (extract) (31 December 2016)

H : Comparison of key permit/licence conditions andadministrative measures imposed by the three licensingdepartments

I : Recommendations of the Law Reform Commission Report

J : Acronyms and abbreviations

77 – 78

79

80

81

82

83

84

85 – 86

87 – 90

91

— iv —

— v —

MONITORING OF CHARITABLEFUND-RAISING ACTIVITIES

Executive Summary

1. Fund-raising is an activity carried out by many charities and it often takes

the charities into direct contact and dealings with members of the public. Currently,

there is no legislation enacted specifically to control charitable fund-raising

activities. The Government’s regulation of certain charitable fund-raising

activities is incidental to the legislation that controls nuisances committed in

public places, gambling and hawking. Under the legislation, permits or

licences are required for conducting charitable fund-raising activities in public

places such as flag days and on-street charity sales, or involving sale of raffle

tickets (hereinafter collectively referred to as “regulated charitable fund-raising

activities”), which are granted by the relevant licensing departments, namely

the Social Welfare Department (SWD), the Home Affairs Department (HAD)

or the Food and Environmental Hygiene Department (FEHD). Additionally,

the Lands Department (Lands D) grants approval for temporary occupation of

unleased land for conducting fund-raising activities. However, other forms of

fund-raising activities (such as charity auctions, balls, concerts, dinners, or requests

for donations by mail or through advertisements) do not require a permit or a

licence. Nevertheless, the funds raised by charities are significant and increasing in

recent years. Proceeds raised from regulated charitable fund-raising activities

approved by the SWD and the HAD totalled $282 million in 2014-15, whereas

charitable donations allowed for tax deduction under the Inland Revenue Ordinance

(IRO — Cap. 112) reached $11.84 billion for the year of assessment 2014-15.

While charities are granted access to public areas to raise funds for their charity

work, an effective monitoring framework has an important role to play in enhancing

the governance standards of charities and ensuring that they uphold accountability

and transparency for the donations they received. The Audit Commission (Audit)

has recently conducted a review on the Government’s monitoring of charitable

fund-raising activities with a view to identifying areas for improvement.

Executive Summary

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Government’s efforts to promote transparencyand accountability of charitable fund-raising activities

2. Voluntary system to enhance transparency and accountability. In

response to the recommendation on implementing a scheme of control over

fund-raising activities raised in the Director of Audit’s Report of October 1997 and

the Report of the Public Accounts Committee of 1998, the Government decided in

September 2002 that administrative controls should be strengthened with a view to

enhancing transparency and accountability of fund-raising activities to enable donors

to make an informed choice when making donations. In 2004, the SWD

promulgated a guide on the best practices for charitable fund-raising activities

(Reference Guide) and updated the 1998 guidance note on internal financial controls

for charitable fund-raising activities for voluntary adoption by charities (paras. 2.4

to 2.6).

3. Need to further promote the recognition and voluntary adoption of best

practices. Since the promulgation of the Reference Guide in 2004, 400 (94%) of

the 426 respondents to surveys of 961 charitable organisations conducted by the

SWD indicated that they would adopt the Guide. Audit’s sample check of

40 tax-exempt charities suggested that there was a high correlation between those

charities which had indicated adoption of the Reference Guide and the publication of

their financial information on their websites (paras. 2.7, 2.9 and 2.10).

Accordingly, there is a need to further promote the recognition and voluntary

adoption of best practices for organising charitable fund-raising activities,

particularly in light of the following developments:

(a) Rapidly expanding charity sector. The number of tax-exempt charities

under the IRO had doubled from 4,435 in March 2006 to 8,923 in

September 2016. The charitable donations allowed for tax deduction had

more than doubled during the period for the years of assessment from

2005-06 to 2014-15 (para. 2.11); and

(b) Other forms of fund-raising activities not subject to Government’s

monitoring. Appeals for donations through the Internet and face-to-face

solicitation of regular donations in public places are examples of other

fund-raising activities not subject to the Government’s monitoring. In

2016, 194 (77%) of 252 multi-district applications to the Lands D for

temporary occupation of unleased land were for conducting face-to-face

solicitation of regular donations in public places by means of signing

Executive Summary

— vii —

direct debit authorisation forms. Among the 18 applicants involved in

these 194 applications, only 6 (33%) had adopted the Reference Guide.

In April 2016, a Legislative Council Member expressed the view that such

mode of fund-raising involving a large sum of money had become a trend

and the Government should study ways to regulate these activities

(paras. 2.12 and 2.13).

4. Room for improvement in promoting best practices for organising

charitable fund-raising activities. From 2004 to September 2016, the SWD

reached out to 961 charitable organisations (which were PSP applicants or SWD

subvented organisations) in promoting adoption of the Reference Guide. Given that

there were 8,923 tax-exempt charities as at September 2016, the SWD may seek the

assistance of relevant bureaux/departments (B/Ds) for the purpose of achieving

wider promotion and recognition of the best practices for fund-raising. Audit also

found that: (a) the SWD had not conducted any review on the effectiveness of the

Reference Guide after the last review in September 2006; (b) the Government had

not launched any large-scale promotional programmes of the Reference Guide after

it was updated in December 2014; and (c) more guidance on other forms of

fund-raising activities should be incorporated in the publications of best practices in

light of the increased use of on-street face-to-face solicitation of regular donations

and social media on the Internet for fund-raising (paras. 2.14 and 2.15).

5. Low usage of the one-stop finder. In July 2012, a one-stop finder on

charitable fund-raising activities approved by the three licensing departments was

launched on the government portal “GovHK” to provide easy and convenient access

to such information. Audit found that the usage of the one-stop finder (i.e. the

average daily hit rates) had decreased by 77% from 275 in 2012-13 (from

July 2012) to 62 in 2016-17 (up to October 2016). The three licensing departments

need to consider stepping up or renewing their publicity efforts to raise the public

awareness of the service (paras. 2.16 to 2.18).

Administration of public subscription permitsfor charitable fund-raising activities

6. The Summary Offences Ordinance (Cap. 228) consolidates the law

relating to summary offences including nuisances committed in public places. To

regulate against nuisances committed in public places, the SWD issues public

subscription permits (PSPs) for flag days and general charitable fund-raising

Executive Summary

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activities in public places under section 4(17)(i) of the Ordinance. In 2015-16, the

SWD issued 120 PSPs for flag days and 365 PSPs for general charitable

fund-raising activities, and the gross proceeds raised amounted to $119 million and

$69 million respectively (para. 3.2).

7. Need to issue guidelines on the scope of PSP. Given the wide varieties

of fund-raising activities and the changes in their modes of collection of donations,

the SWD has from time to time sought the Department of Justice’s advice on

whether a particular PSP application based on its individual circumstances is under

the scope of the Summary Offences Ordinance. Drawing on this experience, the

SWD should explore the feasibility of issuing more guidelines to facilitate charitable

organisations in determining the relevance of PSP to their activities before filing

their applications (paras. 3.8 and 3.10).

8. Compliance with permit conditions. Permittees’ compliance with the

permit conditions is important to ensure the proper conduct and accountability of

charitable fund-raising activities (para. 3.11). Audit has found the following areas

for improvement:

(a) Delays in submission of audited reports. To enhance transparency and

accountability of the funds raised, permittees are required to submit

audited reports of fund-raising activities within 90 days of the last event

day. This enables the public to make an informed choice when making

donations. Of the 1,497 audited reports due for submission by

325 permittees from April 2012 to September 2016, 15 (1%) were

outstanding as of September 2016, of which 6 were long overdue (ranging

from 216 to 429 days, averaging 342 days). For the 1,482 submitted

audited reports, 658 (44% of 1,482) were late reports, including

76 (12% of 658) which were late for more than 3 months. Moreover,

13 of the 325 permittees failed to submit the audited reports on time

repeatedly, i.e. for two to four times (para. 3.12);

(b) Fund-raising by organisations on the withholding list. As part of the

SWD’s monitoring mechanism, permittees which fail to submit audited

reports after the issue of written reminders/warnings will be put on a

withholding list so that the processing of their new PSP applications will

be withheld. As of September 2016, there were 8 organisations on the

withholding list. Audit found that 7 of them had continued to raise funds

Executive Summary

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on their websites and through other activities outside the

SWD’s purview. To enable the public to make an informed choice when

making donations, the SWD needs to consider publicising information on

serious or repeated non-compliance with PSP conditions after warnings

(paras. 3.5 and 3.13); and

(c) Need to take concerted actions on repeated “no-show” cases. Use of

public places (especially those with high pedestrian flow) for charitable

fund-raising activities was in high demand. Audit sample check revealed

that in 2016, the Lands D had rejected applications for 1,059 (50%) of

2,109 locations for fund-raising purposes. The SWD’s random on-site

inspections on general charitable fund-raising activities from June 2015 to

September 2016 revealed no fund-raising activities in 30 (50%) of

60 inspections, i.e. the “no-show” cases. Inspections conducted by the

FEHD on on-street selling activities for fund-raising purposes also found

“no-show” cases in 59% of 2,128 inspections. The high percentage of

“no-show” cases indicates an ineffective use of public resources as other

charities are deprived of the opportunity to use the places. Among the

SWD’s inspected cases, 7 organisations had been repeatedly found not

carrying out any fund-raising activities during the time of inspections.

The SWD needs to liaise with the FEHD and the Lands D on the

feasibility of sharing enforcement information and taking concerted

actions on repeated “no-show” cases without valid reasons (paras. 3.14

and 5.11).

9. Monitoring of charitable fund-raising activities under PSPs. Audit has

found the following areas for improvement in monitoring fund-raising activities:

(a) High administration costs in some fund-raising activities. At present,

the SWD imposes a permit condition that the fund-raising expenses of flag

days should not exceed 10% of the gross proceeds, but not for general

charitable fund-raising activities. Audit found that from 2012-13 to

2015-16, the overall percentages of expenses to gross proceeds of such

fund-raising activities ranged from 22% to 30%. According to the SWD,

it might not be practical to set an across-the-board ceiling for all general

charitable fund-raising activities given the diversity of their nature and

mode of operation, and the absence of a commonly agreed definition of

“administration costs” of a fund-raising activity. However, the feasibility

of defining the term “administration costs” with a view to setting an

Executive Summary

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expenses ceiling as a PSP condition for on-street general charitable

fund-raising activities which are similar in nature to flag days should be

explored (paras. 3.17, 3.19 and 3.21); and

(b) Limitations of audited reports of PSP fund-raising activities. Currently,

the SWD does not specify whether accounts for PSP fund-raising activities

should be prepared on a cash basis or an accrual basis. As accrued

expenses could not be reflected in the accounts prepared on a cash basis,

there could be an understatement of expenses, as evidenced by a case

noted by Audit. Moreover, as permittees’ auditors are not required to

verify compliance with the permit condition of depositing the net proceeds

into a bank account within 90 days from the last day of the event

concerned, there is no assurance on compliance with this permit condition

(para. 3.23).

Administration of lottery licencesfor charitable fund-raising activities

10. The Gambling Ordinance (Cap. 148) is the law relating to gambling,

betting, gaming, gambling establishments and lotteries. Under the Ordinance,

anyone who wishes to conduct a lottery event has to apply for a lottery licence from

the Office of the Licensing Authority of the HAD. Lottery licences for charitable

fund-raising are issued to bona-fide organisations to conduct lottery ticket sales for

raising funds to meet the organisations’ operating expenses and/or for making

donations to tax-exempt charities. In 2015-16, the HAD granted 60 lottery licences

which raised gross proceeds of $88 million (para. 4.2).

11. Inadequate follow-up on late submission of required documents. Upon

completion of a lottery event, the licensee is required under the licence conditions to

submit to the HAD documents such as lottery accounts and lottery results within the

stipulated time. Audit examined 263 lottery licences granted from 2012-13 to

2015-16 and found that there were delays in submitting the lottery accounts for

120 (46%) licences. The delays were over three months in 17 (14%) cases, up to

746 days in one case. For 10 lottery accounts which had been overdue for over

180 days, reminders/warning letters had not been issued to the licensees concerned

within the HAD’s stipulated time. While the HAD’s computer system had records

of the submission due dates, it could not generate exception reports to facilitate

Executive Summary

— xi —

HAD staff in following up the outstanding cases in a timely manner (paras. 4.4, 4.6,

4.8 and 4.10).

12. Need to ensure the use of proceeds is accounted for in submitted

financial statements. As a licence condition, if the net proceeds of the lottery are

used for meeting the expenditure of the licensee, a copy of the audited annual

financial statements of the licensee, which should show the income and expenditure

of the lottery and the whereabouts of the net proceeds should be submitted to the

HAD within one year. Audit sample checked 30 licences and found that in

6 (20%) cases, the submitted statements did not show separately the income and

expenditure of their lottery events nor the use of net proceeds, but HAD staff

accepted the licensees’ explanation that they had been subsumed under other income

and expenditure items in the submitted statements. The HAD needs to provide more

guidance to licensees and ensure their compliance with the relevant licence condition

on showing separately the income and expenditure of the lottery and the

whereabouts of the net proceeds (para. 4.11).

13. Need to facilitate public access to the lottery accounts. The HAD

publishes on its website a list of lottery accounts submitted by licensees. However,

the HAD’s requirements for the public to inspect the lottery accounts in the

HAD’s office physically and not allowing making copies of the accounts do not

facilitate access and are not conducive to achieving the Government’s objective of

enhancing transparency and accountability of fund-raising activities. Moreover,

while the HAD encourages lottery organisers to publish lottery accounts on their

websites, Audit survey of the websites of 10 lottery organisers revealed that none of

them had done so. The HAD needs to take measures to facilitate public access to

the lottery accounts (paras. 4.12 and 4.13).

Administration of temporary hawker licencesfor fund-raising activities involving on-street selling

14. Since the early 1970’s, the Government has stopped issuing new hawker

licences under normal circumstances. Under the Hawker Regulation (Cap. 132AI),

the FEHD issues temporary hawker licences to facilitate charities or other

non-profit-making organisations for conducting on-street selling of commodities in

raising funds and to regulate such hawking activities in public streets to ensure that

they are conducted in a hygienic manner and will not cause nuisances. A

Executive Summary

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tax-exempt charity which has obtained a PSP from the SWD for a fund-raising

activity may apply for a waiver from obtaining a temporary hawker licence. In

2015-16, the FEHD issued 88 temporary hawker licences and granted 44 waivers.

Aiming to enhance transparency and accountability of fund-raising activities,

safeguard the proper use of donations, prevent abuse of temporary hawker licences

and achieve a fair distribution of public resources among the fund-raising

organisations, the FEHD introduced in 2012 a number of new administrative

measures (such as limiting the number of licences granted to each fund-raising

organisation and requiring organisations issued with more than 12 licences within

12 months to submit an audited account of the fund-raising activities for each and

every licence subsequently issued) (paras. 5.2 to 5.5).

15. Different administrative/licensing requirements between the FEHD and

other licensing departments. Comparing the administrative/licensing requirements

of the FEHD with those of the other two licensing departments, Audit has found the

following differences:

(a) Custody of monies received. The FEHD has not required licensees to put

in place safeguards to ensure the safe custody of the monies received

during fund-raising activities for charitable purposes (para. 5.7(a));

(b) Accounts for fund-raising activities. The FEHD has only required

organisations granted with more than 12 licences within 12 months to

submit audited accounts for the 13th licence onwards. In this connection,

Audit noted that in one case, although 16 temporary hawker licences had

been issued to an organisation within 12 months, the concerned

organisation had not submitted the audited accounts for the last 4 licences

issued and the FEHD had not taken any follow-up action (paras. 5.7(b)

and 5.8(a)); and

(c) Purpose of fund-raising and use of donations. The FEHD has not

required licensees to inform donors or prospective donors about the

purpose of fund-raising and to properly account for the use of donations

(para. 5.7(c)).

16. Deficiencies in inspections. The FEHD conducts inspections at least

twice a day to check licensees’ compliance with licence conditions and on a daily

basis to detect any irregularities for on-street selling activities covered by waivers.

Executive Summary

— xiii —

Audit examination of inspection records from April 2014 to December 2016

revealed that of the 2,508 required inspections, 139 (6%) inspections had not been

conducted and the records of 241 (10%) inspections were either missing or

inadequate to show whether inspections had been conducted (paras. 5.9 and 5.10).

17. Lack of one-stop service. Owing to the lack of one-stop service, an

organisation may need to seek approvals from different departments (the FEHD, the

SWD and the Lands D) for the same charitable fund-raising activity involving

on-street selling, resulting in duplication of regulatory efforts and extra workload

and inconvenience to charitable organisations. Some organisations might have

breached the relevant legislation for not having sought all the required approvals.

For example, of 42 PSPs issued by the SWD from January to September 2016

involving selling activities in public streets, 15 (36%) permittees had not applied to

the FEHD for waivers. There is a need for the three departments to consider

providing a one-stop service to streamline the processing and approvals of such

activities (paras. 5.12 and 5.13).


18. According to the Law Reform Commission (LRC) Report, there are

deficiencies in the existing regulatory framework of charities, including inconsistent

standards or requirements on governance, accounting and reporting by charities and

limited control of charitable fund-raising activities. The LRC made

18 recommendations to improve the transparency and accountability of charities,

which included, among others, imposing certain filing requirements in applications

for charitable fund-raising licences or permits, setting up centralised telephone

hotline for public enquiries and complaints in relation to charitable fund-raising

activities, requiring charitable organisations to display their registration numbers

during charitable fund-raising activities, and engaging in more public education on

matters relating to charitable fund-raising activities (paras. 6.2 and 6.3).

19. Slow progress in responding to the LRC’s recommendations. According

to the Government’s guidelines, a detailed public response to the LRC’s

recommendations should be provided within 12 months of its publication.

However, for three years since the issue of the LRC Report in December 2013, the

Home Affairs Bureau (HAB) had reported that it was still coordinating comments

from relevant B/Ds for consideration of the way forward. Audit found that there

were inadequacies in the internal consultation, e.g. while B/Ds’ feedback had been

Executive Summary

— xiv —

received in April 2014, the HAB only consolidated the views into a preliminary

assessment paper in June 2015 and convened two inter-departmental meetings in

mid-August 2015 and October 2016. The HAB needs to: (a) expedite the

consultation with relevant B/Ds with a view to formulating a response to all the

recommendations of the LRC Report; and (b) take into account areas for

improvement identified in this Audit Report which are complementary to the

LRC’s recommendations in considering the way forward in formulating a response

(paras. 6.4 and 6.6 to 6.10).


20. Audit recommendations are made in the respective sections of this

Audit Report. Only the key ones are highlighted in this Executive Summary.

Audit has recommended that:

(a) the Director of Social Welfare, the Director of Home Affairs and the

Director of Food and Environmental Hygiene should:

(i) step up promotion efforts to encourage more charitable

organisations in adopting the best practices for organising

charitable fund-raising activities (para. 2.19(a)(ii)); and

(ii) incorporate more guidance on other forms of fund-raising

activities in the publications of best practices for organising

charitable fund-raising activities (para. 2.19(a)(iii));

(b) the Director of Social Welfare should:

(i) explore the feasibility of issuing more guidelines on the scope of

the PSP for reference by applicants (para. 3.25(a));

(ii) step up enforcement actions on cases of repeated

non-compliance with the permit conditions on submission of

audited reports (para. 3.25(b));

(iii) in collaboration with the Director of Food and Environmental

Hygiene and the Director of Lands, explore the feasibility of

Executive Summary

— xv —

sharing enforcement information on charitable fund-raising

activities held in public places and taking concerted actions on

repeated “no-show” cases without valid reasons (para. 3.25(c));

and

(iv) explore the feasibility of defining the term “administration

costs” with a view to setting an expenses ceiling for on-street

general charitable fund-raising activities which are similar in

nature to flag days (para. 3.25(e));

(c) the Director of Home Affairs should:

(i) step up monitoring of licensees’ compliance with the lottery

licence conditions, and consider taking suitable measures to

deter cases of repeated late submission of documents

(para. 4.14(a));

(ii) provide more guidance to licensees and ensure their

compliance with the condition that the use of net proceeds is

accounted for in the financial statements (para. 4.14(c)); and

(iii) take measures to facilitate public access to the lottery accounts

(para. 4.14(d));

(d) the Director of Food and Environmental Hygiene should:

(i) consider improving the administrative measures for monitoring

on-street selling activities for charitable fund-raising purposes

(para. 5.14(a));

(ii) take measures to ensure that inspections on compliance with

the licence conditions are carried out in accordance with

laid-down guidelines (para. 5.14(d)(i)); and

(iii) work in collaboration with the Director of Social Welfare and

the Director of Lands to consider providing a one-stop service

to streamline the processing and approvals of fund-raising

activities involving on-street selling (para. 5.14(e)(ii)); and

Executive Summary

— xvi —

(e) the Secretary for Home Affairs should expedite the consultation with

relevant B/Ds with a view to formulating a response to all the

recommendations of the LRC Report for the Government’s

consideration (para. 6.11(a)).


21. The Government generally agrees with the audit recommendations.

— 1 —

PART 1: INTRODUCTION

1.1 This PART describes the background to the audit and outlines the audit

objectives and scope.

Charities in Hong Kong

1.2 Charities make an important contribution to Hong Kong, such as bringing

communities together and providing transformational changes as well as caring

services and support to meet the needs of some of the most vulnerable members of

the community. Over the years, the Government has supported charities by

providing them with tax-exemption status, land grants at nominal rent/premium,

subventions, and allowing tax deduction for donors making donations to recognised

tax-exempt charities (Note 1).

1.3 Funds raised by charities are significant and increasing in recent years.

Figure 1 shows that the charitable donations allowed for tax deduction by the

Inland Revenue Department (IRD) had increased from $5.25 billion for the year of

assessment 2005-06 to $11.84 billion for 2014-15, or an increase of 126% in these

ten years. Tax revenue foregone is estimated to be over $1.5 billion in the year of

assessment of 2014-15 (Note 2). There are no readily available statistics on the

revenue foregone by the Government by providing tax exemption to charities.

Note 1: Tax deduction for charitable donations has been provided since 1970 under theInland Revenue Ordinance (Cap. 112 — first enacted in 1947). Sections 16Dand 26C of the Ordinance allow a deduction for approved charitable donationsmade by a person during the year of assessment under profits tax and salariestax/personal assessment respectively. The aggregate amount of donationsdeductible for the year should not be less than $100 and should not exceed35% of the total assessable profits/income (since the year of assessment 2008-09).

Note 2: The estimation is based on a standard tax rate of 15%.

Introduction

— 2 —

Figure 1

Increasing amount of charitable donations allowed for tax deduction(Years of assessment 2005-06 to 2014-15)

Source: IRD records

Existing monitoring framework for charitable fund-raising activities

1.4 Fund-raising is an activity carried out by many charities and it often takes

the charities into direct contact and dealings with members of the public. Charities

are granted access to public areas to raise funds for their charity work. Currently,

there is no legislation enacted specifically to control charitable fund-raising

activities. The Government’s regulation of certain charitable fund-raising

activities is incidental to the legislation that controls nuisances committed in

public places, gambling and hawking. Under the legislation, permits or

licences are required for conducting charitable fund-raising activities in public

places such as flag days and on-street charity sales, or involving sale of raffle

tickets (hereinafter collectively referred to as “regulated charitable fund-raising

activities”). However, other forms of fund-raising activities (such as charity

auctions, balls, concerts, dinners, or requests for donations by mail or through

advertisements) do not require a permit or a licence. The following departments are

responsible for the monitoring of charitable fund-raising activities, depending on

their nature:

5.255.97

7.108.11

8.879.35 9.58

10.29 10.68

11.84

0

2

4

6

8

10

12

14

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

Year of assessment

Am

ount

($billion

)

Introduction

— 3 —

(a) Social Welfare Department (SWD). Under section 4(17)(i) of the

Summary Offences Ordinance (Cap. 228), public subscription permits

(PSPs) are required for any collection of money or sale or exchange for

donations of badges, tokens or similar articles in public places (Note 3).

The SWD issues PSPs for charitable fund-raising activities (Note 4). The

PSPs issued by the SWD cover two types of charitable fund-raising

activities in public places, namely flag days (Note 5 ) and general

charitable fund-raising activities (Note 6);

(b) Home Affairs Department (HAD). Under section 22 of the Gambling

Ordinance (Cap. 148), the Office of the Licensing Authority of the HAD

issues lottery licences (Note 7) to bona-fide organisations for the conduct

and sale of fund-raising lottery tickets;

Note 3: The term “public place” is defined in the Summary Offences Ordinance as“all piers, thoroughfares, streets, roads, lanes, alleys, courts, squares,archways, waterways, passages, paths, ways and places to which the public haveaccess either continuously or periodically, whether the same are the property ofthe Government or of private persons”.

Note 4: The responsibility for issuing PSPs for non-charitable fund-raising activities inpublic places (e.g. raising funds for election expenses by political organisations)under section 4(17)(ii) of the Summary Offences Ordinance rests with theHome Affairs Bureau.

Note 5: Through an annual exercise, the SWD allocates some Wednesdays which fall onschool or public holidays and Saturdays (except special festive days such asHong Kong Special Administrative Region Establishment Day, in view of thedifficulty in recruiting volunteers and/or possible inconvenience to theHong Kong Police Force in keeping order in public places) to eligible charitableorganisations for holding flag days, either on a territory-wide or regional basis.For a regional-based flag day, three permittees will each conduct flag saleactivities in one of the three regions, viz. the Hong Kong Island region, theKowloon region and the New Territories region. For a territory-wide flag day,one permittee will conduct flag sale activities in all three regions. The flagselling hours are from 7:00 am to 12:30 pm.

Note 6: General charitable fund-raising activities include charity sale of badges, tokensor similar articles, setting up of donation boxes at stationed counters, movingaround solicitation with money-collection boxes/bags and door-to-door donationin public housing estates.

Note 7: In April 2012, the HAD took over the responsibility for issuing lottery licencesfrom the former Television and Entertainment Licensing Authority which wasmerged with the former Office of the Telecommunications Authority to form theOffice of the Communications Authority.

Introduction

— 4 —

(c) Food and Environmental Hygiene Department (FEHD). Under the

Hawker Regulation (Cap. 132AI) of the Public Health and Municipal

Services Ordinance (Cap. 132), the FEHD issues temporary hawker

licences to persons authorised by:

(i) charitable institutions or trusts of a public character exempt from

tax under section 88 of the Inland Revenue Ordinance (IRO —

Cap. 112) (hereinafter referred to as tax-exempt charities) for

charitable fund-raising activities involving on-street selling of

commodities; or

(ii) other non-profit-making organisations incorporated or registered

under the laws of Hong Kong for fund-raising activities involving

on-street selling of commodities for non-charitable or

non-commercial purposes; and

(d) Lands Department (Lands D). The Lands D grants approval for

temporary occupation of unleased land to non-profit-making organisations

wishing to set up booths or counters for conducting fund-raising activities.

1.5 Table 1 shows the numbers of permits and licences issued for charitable

fund-raising activities for the period from April 2012 to September 2016.

Introduction

— 5 —

Table 1

Permits and licences issued for charitable fund-raising activities(April 2012 to September 2016)

Year

Type

PSP for

flag daysgeneral charitable

fund-raising activitiesLotterylicence

Temporaryhawkerlicence

(Note 1)

(Number)

2012-13 117 400 66 222

2013-14 117 447 69 60

2014-15 117 376 68 41

2015-16 120 365 60 41

2016-17(Up to

September 2016)

116(Note 2)

154(Note 3)

23 10

Source: SWD, HAD and FEHD records

Note 1: The figures only included the temporary hawker licences issued to personsauthorised by tax-exempt charities for charitable fund-raising activities.According to the FEHD, the number of all temporary hawker licences issued in2011 was about 1,200 (of which over 90% were issued to tax-exempt charities).After the introduction of a limit on the number of licences issued for eachfund-raising organisation within 12 months in July 2012 (see para. 5.5), therewas a decrease in the number of licences issued.

Note 2: PSPs for flag days are issued to all successful organisations around Decembereach year (see para. 3.2(a)). Up to September 2016, 65 flag-day fund-raisingactivities had been conducted.

Note 3: Up to March 2017, about 370 PSPs for general charitable fund-raising activitieshad been issued.

Introduction

— 6 —

Previous audit review on monitoring of charities

1.6 In 1997, the Audit Commission (Audit) conducted a review of

“Monitoring of charities: fund-raising and tax allowances” covering the

Government’s procedures on monitoring of charitable fund-raising activities and

those on administering tax exemptions. The results were reported in Chapter 4 of

the Director of Audit’s Report No. 29 of October 1997. The Government accepted

the audit recommendations for implementation.

Government’s efforts to enhance the transparencyand accountability of charitable fund-raising activities

1.7 In the past years, the Government implemented various measures to

enhance the transparency and accountability of charitable fund-raising activities, as

follows:

(a) Publication of best practices. In November 2004, the SWD promulgated

the “Reference Guide on Best Practices for Charitable Fund-raising

Activities” (Reference Guide) suggesting best practices in the areas of

donors’ rights, fund-raising practices and financial accountability. It also

updated the “Guidance Note on Internal Financial Controls for Charitable

Fund-raising Activities” (Guidance Note — first issued in 1998) for

voluntary adoption by charities. The Guidance Note sets out advice in

respect of the safe custody of cash, and proper documentation of income

and expenditure generated from charitable fund-raising activities (Note 8).

In December 2014, the Reference Guide was updated to incorporate new

guidance on donors’ rights and fund-raising practices (see para. 2.6 and

Appendix A); and

(b) One-stop finder for fund-raising activities. In July 2012, the Office of

the Government Chief Information Officer (OGCIO) launched a one-stop

finder on charitable fund-raising activities approved by the three licensing

departments listed in paragraph 1.4(a) to (c) on the Government Portal

Note 8: In October 2009, the Independent Commission Against Corruption alsopublished the “Best Practice Checklist for the Management of Charities andFundraising Activities” to help charities enhance internal governance, andtransparency and accountability in fund-raising activities.

Introduction

— 7 —

“GovHK” to provide easy and convenient public access to such

information on one single website.

1.8 The rapid rise in philanthropy (see para. 1.3) has highlighted the need to

ensure that charitable organisations exercise good governance, stewardship, and

ethical practices, and the monies collected are applied to their professed charitable

purposes. From time to time, there have been public concerns over the adequacy of

the Government’s monitoring of charitable organisations and their activities. The

following are some examples:

(a) at a meeting of the Legislative Council (LegCo) Panel on Welfare

Services in April 2016, Members expressed concerns on various aspects

of on-street fund-raising activities:

(i) it had become a trend to request donors to set up standing donation

instructions (i.e. signing direct debit authorisation forms) and such

mode of fund-raising could involve a large sum of money. The

Government should study ways to regulate these activities;

(ii) some organisations would engage intermediaries to solicit

donations and might be charged an unreasonable administrative

fee. The Government should make public the names of the

organisations which incurred an unreasonable administrative fee

for their fund-raising activities and remind members of the public

to stay vigilant when making donations; and

(iii) there was a need for the Government to implement the

recommendations put forward by the Law Reform Commission

(LRC — Note 9 and see para. 1.9), including the setting up of a

platform of coordination in dealing with applications for charitable

fund-raising licences among the relevant departments, and making

Note 9: The LRC, established in January 1980, considers for reform those aspects of thelaws of Hong Kong which are referred to it by the Secretary for Justice or theChief Justice. Members of the LRC are appointed by the Chief Executive of theHong Kong Special Administrative Region and include academics, practisinglawyers, and prominent members of the community.

Introduction

— 8 —

improvements to the existing mechanism for overseeing

fund-raising activities;

(b) there was a media report in January 2017 alleging that some organisations

incurred high administration and fund-raising costs. In this connection, a

LegCo Member expressed concern on the lack of government control on

charities; and

(c) over the years, the SWD has been receiving enquiries/complaints from the

public on fund-raising activities. According to the SWD, from

April 2012 to September 2016, 46 (5%) of 891 such enquiries/complaints

received were suspected cases of illegal fund-raising activities and were

referred to the Hong Kong Police Force (HKPF) for further investigation.

An effective monitoring framework has an important role to play in enhancing the

governance standards of charities and ensuring that they uphold accountability and

transparency for the donations they received.


1.9 In view of the wide discussion by the community on the need for greater

monitoring of charitable organisations, in June 2007, the Chief Justice and the

Secretary for Justice asked the LRC to review the subject. In December 2013, after

completing a public consultation in 2011, the LRC published a Report on Charities

(LRC Report) with a number of recommendations, including the definition and

registration of charities, facilitation of good practice, financial reporting by charities

and filing requirements (and requirement of display of registration number) for

charitable fund-raising activities. In particular, the LRC Report recommended that

all charitable organisations should be subject to the requirement of registration and a

platform of coordination in dealing with applications for licences of charitable

fund-raising activities among the relevant departments should be set up. Given that

the recommendations touched on areas which fell within the policy responsibilities

of several bureaux, the Home Affairs Bureau (HAB) has been tasked to coordinate

inputs from relevant bureaux/departments (B/Ds) for formulating a response to the

LRC’s recommendations for the Government’s consideration.

Introduction

— 9 —

Audit review

1.10 Against the above background, in October 2016, Audit commenced a

review on the Government’s support and monitoring of the rapidly expanding

charity sector and their charitable fund-raising activities. The audit findings are

contained in two Audit Reports, namely the monitoring of charitable fund-raising

activities (the subject matter of this Audit Report) and the Government’s support and

monitoring of charities (in Chapter 1 of the Director of Audit’s Report No. 68).

1.11 This Audit Report focuses on the following areas:

(a) Government’s efforts to promote transparency and accountability of

charitable fund-raising activities (PART 2);

(b) administration of public subscription permits for charitable fund-raising

activities (PART 3);

(c) administration of lottery licences for charitable fund-raising activities

(PART 4);

(d) administration of temporary hawker licences for fund-raising activities

involving on-street selling (PART 5); and

(e) way forward (PART 6).

General response from the Government

1.12 The Secretary for Home Affairs, the Director of Home Affairs and the

Director of Food and Environmental Hygiene generally agree with the audit

recommendations.

1.13 The Director of Social Welfare welcomes Audit’s review on the SWD’s

monitoring of charitable fund-raising activities in public places and generally agrees

with the recommendations on enhancing the transparency and accountability of

charitable fund-raising activities and strengthening the administrative measures in

regulating these activities.

Introduction

— 10 —

Acknowledgement

1.14 Audit would like to acknowledge with gratitude the assistance and full

cooperation of the staff of the HAB, the SWD, the HAD, the FEHD, the Lands D

and the OGCIO during the course of the audit review.

— 11 —

PART 2: GOVERNMENT’S EFFORTS TO PROMOTETRANSPARENCY AND ACCOUNTABILITYOF CHARITABLE FUND-RAISINGACTIVITIES

2.1 This PART examines the Government’s efforts in promoting transparency

and accountability of charitable fund-raising activities, focusing on:

(a) voluntary adoption of best practices for organising fund-raising activities

by charities (paras. 2.7 to 2.15); and

(b) usage of the one-stop finder (paras. 2.16 to 2.18).

Voluntary system to enhance transparency and accountability

2.2 To promote Hong Kong as a caring society and a community supportive

of charitable causes, the Government keeps regulatory procedures to a minimum to

facilitate charitable organisations to attract community resources to fund their

charitable causes. However, from time to time, there were some concerns over

fund-raising practices and the proper use of funds raised.

2.3 Under existing legislation, the Government’s monitoring of charitable

fund-raising activities is only confined to those carried out in public places or

involving lotteries where permits or licences are required and administered by

the SWD, the HAD or the FEHD (i.e. regulated charitable fund-raising

activities). Other forms of fund-raising activities (such as on-street face-to-face

solicitation of regular donations (by means of signing direct debit authorisation

forms), charity auctions, balls, concerts, dinners, sales, walks, film premieres, and

appeals for donations by mail, phone advertisements, mass media and the Internet)

do not require a permit or a licence (see para. 1.4).

2.4 In Chapter 4 of the Director of Audit’s Report No. 29 of October 1997

on the audit review of “Monitoring of charities: fund-raising and tax allowances”

(see para. 1.6), Audit expressed concern over the inadequacy of government control

over charitable fund-raising activities and recommended that the Government should

expedite action on implementing a scheme of control over fund-raising activities.

Government’s efforts to promote transparency andaccountability of charitable fund-raising activities

— 12 —

The Public Accounts Committee of LegCo in its 1998 Report also expressed

concern on the issue. To take the recommendation forward, the Government

decided in September 2002 that:

(a) administrative controls should be strengthened with a view to enhancing

transparency and accountability of fund-raising activities, instead of

formulating legislative proposals as legislation would entail onerous

bureaucracy and resource implications given the small number of

problematic cases;

(b) the administrative measures should enable donors to make an informed

choice when making donations; and

(c) the SWD would revisit the Guidance Note issued in 1998 (see

para. 1.7(a)) and encourage voluntary compliance by charities and

consider setting up a Public Register of charitable fund-raising

organisations which had pledged and demonstrated compliance with a

guide on the best fund-raising practices. This would include disclosing

the intended purposes and beneficiaries of the donations and the

percentage of donations used for administration costs (i.e. the Reference

Guide subsequently promulgated by the SWD in 2004 — see para. 2.6).

2.5 In February 2003, the Ombudsman published a report of a direct

investigation into the monitoring of charitable fund-raising activities, which also

recommended the Government drawing up a Reference Guide for charities and

setting up the proposed Public Register, as a voluntary system to enhance

transparency and accountability of charitable fund-raising activities. The Report

also recommended that the Government should in the longer term, review the

adequacy and appropriateness of government control in monitoring charities in

general and their fund-raising activities in particular. After a public consultation

exercise from August to September 2003, the Government informed the LegCo

Panel on Welfare Services in July 2004 that:

(a) the SWD would draw up a Reference Guide covering best practices on

areas of donors’ rights, fund-raising practices and accounting/auditing

requirements for voluntary adoption by charities. The Reference Guide

would encourage charities to disclose more of their financial information

and to minimise the fund-raising costs. Charities which voluntarily

adopted the Reference Guide might choose to adhere to all or part of the


— 13 —

Guide. The Guide could also serve as a reference for the public in

gauging the performance of a charity in fund-raising;

(b) the proposed Public Register would not be considered at that stage as a

voluntary registration system would not be able to help the public identify

the so-called “dubious” charities. If a compulsory registration system

was introduced, stringent vetting and review procedures had to be

put in place which would have considerable resource implications.

Furthermore, the procedures and the need to ensure cost recovery for

such a system might inadvertently stifle the fund-raising activities, in

particular small-scale charities; and

(c) the SWD would proceed to issue the updated Guidance Note (which

included advice on safe custody of cash, and proper documentation of

income and expenditure generated from charitable fund-raising activities)

in conjunction with the launch of the Reference Guide.

2.6 Reference Guide and Guidance Note. The Reference Guide which

contained 21 best practices on donors’ rights, fund-raising practices and

accounting/auditing requirements was promulgated by the SWD in November 2004,

together with the updated Guidance Note. In September 2006, the SWD conducted

a review on the effectiveness of the Reference Guide by means of a survey of the

charities. Based on the survey results, the SWD concluded that the voluntary

adoption of the Reference Guide was effective in enhancing transparency and

accountability of the fund-raising activities. In December 2014, the Reference

Guide was updated with new guidance on donors’ rights and fund-raising practices,

such as providing donors with charitable service records and providing due care to

fund-raisers with specific needs (e.g. elderly and children). Some of the major best

practices and internal financial controls specified in the Reference Guide and the

Guidance Note are shown at Appendices A and B respectively.

Voluntary adoption of best practicesfor organising fund-raising activities by charities

2.7 Since the promulgation of the Reference Guide in November 2004, the

SWD has taken actions to promote the voluntary adoption of the Guide by charities.

In early years, the SWD issued the Guide to all charities which had obtained

subvention from the SWD or those which had applied for PSPs. The SWD also


— 14 —

prepared printed copies of the Guide for distribution by other B/Ds, such as the

Education Bureau for schools and the Leisure and Cultural Services Department for

the general public visiting public libraries, museums and cultural centres (Note 10).

Furthermore, the SWD has uploaded the Guide onto its website and solicited

charitable organisations’ support for the voluntary adoption of the Reference Guide.

2.8 To understand the extent of voluntary adoption of the Reference Guide,

the SWD has collected information from charitable organisations through various

channels:

(a) in November 2004, the SWD issued letters to charities under its purview

appealing for their adoption of the Guide and requesting them to indicate

their choices. Similar letters to charitable organisations appealing for

adopting the Guide were also uploaded onto the SWD’s website shortly

after the promulgation of the Guide in 2004;

(b) the SWD has also made use of the acknowledgement letters of PSP

applications to request applicant organisations to indicate whether they

would adopt the Reference Guide; and

(c) the SWD has since 2010 issued letters annually to invite charities (which

have not responded to its requests in (a) and/or (b)) to provide

information on whether they would adopt the Reference Guide. Up to

September 2016, 116 organisations had replied to these annual invitations.

2.9 Up to September 2016, the SWD had invited 961 charitable organisations

to provide information on adopting the Reference Guide and received responses

from 426 organisations. Among these 426 responding organisations, 400 had

indicated that they would adopt the Guide. As shown in Table 2, the number of

Note 10: In connection with the public consultation on the Reference Guide (seepara. 2.5), in August 2003, the SWD sought the IRD’s assistance in issuing acircular letter to the tax-exempt charities for soliciting their views. However,owing to the official secrecy provision of the IRO, the IRD, based on the adviceof the Department of Justice, considered it inappropriate to distribute thecircular letter on the SWD’s behalf. Thereafter, the SWD had not approachedthe IRD for assistance in distributing the Reference Guide to the tax-exemptcharities.


— 15 —

organisations fully or partially adopting the Reference Guide had increased by 56%

from 256 in April 2006 to 400 in September 2016.

Table 2

Number of charitable organisations adopting the Reference Guide(April 2006 and September 2016)

Charitable organisations April 2006(Note)

September 2016

(No.)

Informing the SWD of their extent ofadoption

279 426

Fully adopting the Reference Guide 225(81%)

360(85%)

Partially adopting the Reference Guide 31(11%)

40(9%)

Total 256(92%)

400(94%)

Not adopting the Reference Guide 23(8%)

26(6%)

Source: SWD records

Note: The SWD has maintained statistics on the adoption of the Reference Guide sinceJanuary 2005.

2.10 Audit selected 40 tax-exempt charities which solicited public donations to

examine whether they had published their financial information (e.g. annual reports

or annual audited financial statements) on their websites for reference by members

of the public. Audit found that as at February 2017:

(a) 23 (58% of 40) tax-exempt charities had indicated to the SWD that they

would adopt the Reference Guide. Of the 23 tax-exempt charities,

21 (91%) had published their financial information on their websites; and


— 16 —

(b) the other 17 (42% of 40) tax-exempt charities either had indicated to the

SWD that they would not adopt the Reference Guide, had not replied to

or had not been contacted by the SWD. Of these 17 tax-exempt charities,

only 4 (24%) had published their financial information on their websites.

There was a high correlation between those charities which had indicated adoption

of the Reference Guide and the publication of their financial information on their

websites.

Need to further promote the recognition and

voluntary adoption of best practices

2.11 Rapidly expanding charity sector. Over the past 10.5 years, the number

of tax-exempt charities had doubled from 4,435 in March 2006 to 8,923 in

September 2016. The charitable donations allowed for tax deduction had also

increased by 126% from $5.25 billion for the year of assessment 2005-06 to

$11.84 billion for 2014-15 (see para. 1.3). Most of the tax-deductible charitable

donations were raised by fund-raising activities that did not require a permit or a

licence (see para. 1.4). By comparison, in 2014-15, proceeds raised from regulated

charitable fund-raising activities approved by the SWD and the HAD totalled

$282 million only (Note 11). Most of the charitable donations collected through

these regulated fund-raising activities do not meet the criteria for claiming tax

deduction under the IRO. For example, purchases of lottery tickets and

commodities on sale at public places for charitable purposes under the lottery

licences and the temporary hawker licences respectively are not tax deductible

because they are not pure donations without benefits in return. For flag days,

receipts are not given for donations raised through street collections generally

because of their small amounts and therefore, such donation claims will not be

recognised for tax deduction purpose.

Note 11: The FEHD has not maintained records of funds raised by charities issued withtemporary hawker licences for selling activities in public places.


— 17 —

2.12 Other forms of fund-raising activities not subject to Government’s

monitoring. In recent years, the mode of fund-raising has been evolving rapidly

and it is no longer limited to traditional means such as setting up of cash donation

boxes. Appeals for donations through the Internet and face-to-face solicitation of

regular donations in public places by means of signing direct debit authorisation

forms (see Photograph 1) are examples of other fund-raising activities not subject to

the Government’s monitoring (Note 12).

Photograph 1

Face-to-face solicitation of regular donations in public placesby means of signing direct debit authorisation forms

Source: Photograph taken by Audit on 9 December 2016

Note 12: According to the SWD, based on the legal interpretation of the wording of“collection of money” used in the Summary Offences Ordinance, face-to-facesolicitation of regular donations in public places by means of signing direct debitauthorisation forms does not require a PSP as it does not involve collection ofmoney on the spot (see Note 19 to para. 3.9(c)).


— 18 —

2.13 The Lands D grants approval for temporary occupation of unleased land

to non-profit-making organisations for conducting fund-raising activities (see

para. 1.4(d)). Audit analysed the number of multi-district applications for

temporary occupation of unleased land made to the Lands D for setting up booths or

counters for charitable fund-raising activities from January to December 2016.

Audit noted that 194 (77%) of 252 multi-district applications were for conducting

face-to-face solicitation of regular donations in public places by means of signing

direct debit authorisation forms. Among the 18 applicants involved in these

194 applications, only 6 (33%) had adopted the Reference Guide. At a meeting of

the LegCo Panel on Welfare Services in April 2016, a Member expressed the view

that solicitation of regular donations in public places by means of signing direct

debit authorisation forms had become a trend and could involve a large sum of

money, and hence the Government should study ways to regulate these activities

(see para. 1.8(a)(i)).

2.14 Room for improvement in promoting best practices for organising

charitable fund-raising activities. Audit examination of the Government’s efforts

on promotion of the Reference Guide has revealed the following areas for

improvement:

(a) although the Reference Guide was updated in December 2014, the

Government has not launched any large-scale promotional programmes to

enhance the awareness and recognition of the Reference Guide among the

charitable organisations and the general public;

(b) from 2004 to September 2016, the SWD reached out to 961 charitable

organisations (which were PSP applicants or SWD subvented

organisations) in promoting the adoption of the Reference Guide. Given

that there were 8,923 tax-exempt charities (see para. 2.11), the SWD may

consider seeking the assistance of relevant B/Ds for the purpose of

achieving wider promotion and recognition of the best practices for

fund-raising. For example, as 83% of the tax-exempt charities were

registered as companies or societies, the SWD may make use of contact

information available from the Companies Registry and the HKPF in this

regard; and

(c) after the SWD’s review of the effectiveness of the Reference Guide

through a survey of the charities conducted in September 2006

(see para. 2.6), similar review has not been conducted for over ten years.


— 19 —

With the lapse of time, the SWD needs to consider conducting another

review to evaluate the effectiveness of the Reference Guide in achieving

the Government’s objective of enhancing the transparency and

accountability of charitable fund-raising activities in public places

(see para. 2.4(a)).

In Audit’s view, there should be concerted efforts among the three licensing

departments to promote the public awareness and the charitable organisations’

adoption and recognition of the best practices for organising charitable fund-raising

activities.

2.15 Need to incorporate more guidance on other forms of charitable

fund-raising activities. While the Reference Guide was last updated in

December 2014, there had not been any revision of the Guidance Note after its

promulgation in November 2004. The SWD needs to review and update the

Guidance Note and the Reference Guide in light of the changed circumstances.

Given the increased use of on-street face-to-face solicitation of regular donations and

social media on the Internet for fund-raising, there is a need to incorporate more

guidance on other forms of fund-raising activities in the publications of best

practices for organising charitable fund-raising activities as far as practicable. In

this connection, Audit has noted that:

(a) the Face-to-Face Monthly Giving Alliance, set up under the Hong Kong

Council of Social Service, has issued the “Code of Practice on

Face-to-Face Monthly Donors’ Recruitment”, with some requirements

tailor-made for new forms of donations. For example, when soliciting

regular donations, the charitable organisations must inform potential

donors of the procedures to amend their donation instructions (such as

cancelling or changing the frequency of donations). Currently, the

Reference Guide only advises charitable organisations to respond

promptly to a donor’s request to amend the donor’s standing donation

instruction and take all reasonable steps to facilitate such amendment upon

request by the donor; and

(b) in respect of financial controls on donations made online which involve

electronic payment service providers, the guidelines issued by the

Fundraising Institute Australia state that charitable organisations need to

ensure that the service provider maintains a separate bank account into

which all donations are to be deposited and puts in place policies for data


— 20 —

protection (including financial information security). Currently, the

Guidance Note does not have any similar provision in this regard.

According to the SWD, there have been ongoing inter-departmental discussions on

possible enhancement of the Reference Guide for general application to fund-raising

activities in the context of the HAB’s coordination of B/D’s inputs for formulating

the Government’s response to the LRC’s recommendations (see para. 1.9). In this

connection, Audit considers that there is a need to incorporate more guidance on

other forms of fund-raising activities in the publications of best practices for

organising charitable fund-raising activities as far as practicable.

Usage of the one-stop finder

2.16 In July 2012, a one-stop finder (www.gov.hk/fundraising) on charitable

fund-raising activities approved by the SWD, the HAD and the FEHD was launched

on the government portal “GovHK” to provide easy and convenient access to such

information. The finder puts together information on the regulated charitable

fund-raising activities managed by the three licensing departments to enhance public

awareness and facilitate monitoring of these activities. The public can browse the

list of approved activities of the day or search the activity details by date, location

and organisation. The finder is also optimised for display on mobile devices. The

general public can check whether the on-street charitable fund-raising activities they

chance upon have been approved by the relevant departments.

Low usage of the one-stop finder

2.17 Audit analysed the hit rates of the web pages of the one-stop finder. As

shown in Table 3, the usage of the one-stop finder had been on the low side and on

a decreasing trend, i.e. the average daily hit rates had decreased by 77% from 275

in 2012-13 (from July 2012) to 62 in 2016-17 (up to October 2016).


— 21 —

Table 3

Hit rates of the web pages of the one-stop finder(July 2012 to October 2016)

Web page

Average number of daily hit rates

2012-13(from July

2012)

2013-14 2014-15 2015-16 2016-17(up to

October2016)

Percentagedecreasefrom July2012 to

October 2016

Flag days 34 14 14 11 9 74%

Generalcharitablefund-raisingactivities

38 15 12 9 8 79%

Lotteryevents

34 12 10 9 7 79%

On-streetsellingactivities

148 38 32 25 24 84%

Searchingfund-raisingactivities

21 15 15 10 14 33%

Overall 275 94 83 64 62 77%

Source: Audit analysis of one-stop finder log records

2.18 Since the launch of the one-stop finder in July 2012, various departments

have made publicity efforts to promote the service, as follows:

(a) the Information Services Department published a press release and the

HKPF published one article in Police Magazine (which was also broadcast

via television programme “Police Report”) on the launch of the one-stop

finder in July 2012;


— 22 —

(b) since 2013-14, the SWD has produced publicity materials (e.g. posters) to

promote the website link of the one-stop finder;

(c) since 2014-15, the SWD has required printing the Quick Response Code

(commonly known as the QR code) to the one-stop finder on all PSPs and

publicity items;

(d) in 2013, the OGCIO launched a mobile application, namely “EventHK”,

to provide information including the fund-raising activities approved by

the licensing departments; and

(e) the SWD has taken opportunities to promote the one-stop finder in its

verbal/written replies to enquiries and/or complaints from members of the

public, mass media as well as LegCo Members and District Councillors.

In view of the decreasing usage of the one-stop finder (see para. 2.17), the relevant

departments responsible for uploading charitable fund-raising information (i.e. the

SWD, the HAD and the FEHD) onto the one-stop finder need to consider stepping

up or renewing their publicity efforts to raise the public awareness of the service.


2.19 Audit has recommended that:

(a) the Director of Social Welfare, the Director of Home Affairs and the

Director of Food and Environmental Hygiene should:

(i) launch large-scale promotional programmes to enhance the

awareness and recognition among the charitable organisations

and the general public on the best practices for organising

charitable fund-raising activities;

(ii) step up promotion efforts to encourage more charitable

organisations in adopting the best practices for organising

charitable fund-raising activities and endeavour to reach out to

more organisations by seeking assistance from relevant B/Ds to

provide their contact information;


— 23 —

(iii) incorporate more guidance on other forms of fund-raising

activities in the publications of best practices for organising

charitable fund-raising activities as far as practicable; and

(iv) consider stepping up or renewing the publicity efforts to raise

public awareness of the one-stop finder service on charitable

fund-raising activities on the government portal “GovHK”;

(b) the Director of Social Welfare should:

(i) conduct a review of the effectiveness of the Reference Guide to

evaluate the extent of achieving the Government’s objective of

enhancing transparency and accountability of charitable

fund-raising activities in public places; and

(ii) review and update the Reference Guide and the Guidance Note

in light of the changed circumstances; and

(c) the Secretary for Home Affairs should take into consideration the

recommendations in (a) and (b) in coordinating inputs from relevant

B/Ds for the Government’s consideration of the response to the LRC’s

recommendations.


2.20 The Director of Social Welfare agrees with the audit recommendations in

paragraph 2.19(a) and (b). She has said that the SWD will conduct a survey to

collate views for reviewing and updating the Reference Guide and the Guidance

Note.

2.21 The Director of Home Affairs agrees with the audit recommendations in

paragraph 2.19(a). She has said that the HAD is prepared to work with the SWD

and the FEHD on the feasibility of the proposed measures.


— 24 —

2.22 The Director of Food and Environmental Hygiene generally agrees with

the audit recommendations in paragraph 2.19(a). She has said that the FEHD will

continue to work in collaboration with the SWD and the HAD in this regard

and continue to take part in the inter-departmental discussions mentioned in

paragraph 2.15 concerning on-street hawking activities.

2.23 The Secretary for Home Affairs accepts the audit recommendation in

paragraph 2.19(c).

— 25 —

PART 3: ADMINISTRATION OF PUBLICSUBSCRIPTION PERMITS FORCHARITABLE FUND-RAISING ACTIVITIES

3.1 This PART examines the work of the SWD in administering PSPs issued

for charitable fund-raising activities, focusing on:

(a) processing of applications (paras. 3.8 to 3.10);

(b) compliance with permit conditions (paras. 3.11 to 3.14); and

(c) monitoring of charitable fund-raising activities under PSPs (paras. 3.15 to

3.24).

Public subscription permits

3.2 The Summary Offences Ordinance consolidates the law relating to

summary offences including nuisances committed in public places. According to

section 4(17)(i) of the Ordinance, any person who organises, provides equipment

for, or participates in any collection of money or sale or exchange for donations of

badges, tokens or similar articles in public places for charitable purposes is required

to apply for a permit (i.e. PSP) issued by the Director of Social Welfare. Headed

by a Chief Executive Officer, the Lotteries Fund Projects Section (Note 13) under

the Subventions Branch of the SWD (see Appendix C for an extract of the

SWD’s organisation chart) is responsible for issuing PSPs in respect of two types of

charitable fund-raising activities:

(a) Flag days. The SWD conducts an annual exercise to invite and approve

charities to hold flag days to raise funds for their charitable projects

(see Note 5 to para. 1.4(a)). Invitation for applications is advertised on

newspapers and via the SWD’s website in April or May each year. An

applicant organisation must be a bona-fide non-profit-making organisation

Note 13: The Lotteries Fund Projects Section is mainly responsible for administering theLotteries Fund grants to meet the capital costs of welfare projects. About10 staff are allocated to the processing and monitoring of PSPs.


— 26 —

exempted from tax under the IRO. Applications with details of the

projects/services to be funded by the flag sale and breakdown of the usage

of target net proceeds from flag-day fund-raising are considered and

endorsed by the Lotteries Fund Advisory Committee (LFAC — Note 14)

around September. When the number of applications received exceeds

the number of flag days available for allocation, there will be a drawing

of lots to decide on the successful organisations. Eligible applicant

organisations will be invited to witness the lots drawing which determines

the order of priority for their selection of flag days. The SWD issues

PSPs to successful organisations around December each year. Table 4

shows the number of PSPs issued and proceeds raised for flag days from

April 2012 to September 2016; and

(b) General charitable fund-raising activities. These activities cover charity

sale of badges, tokens or similar articles, door to door donation in public

housing estates, setting up of donation boxes in stationed counters, charity

ride, and passing of offering bags. Applications for PSPs for holding

general charitable fund-raising activities in public places can be submitted

throughout the year. An applicant organisation must possess a valid

registration under the Companies Ordinance (Cap. 622), or the Societies

Ordinance (Cap. 151), or be a tax-exempt charity. In submitting an

application to the SWD, the applicant organisation should provide

relevant supporting documents together with information on the time,

duration, locations, products for sale and purposes of the fund-raising

activities at least three weeks before the commencement of the activities.

The validity period of the PSP issued by the SWD depends on the nature

of the activities (Note 15). Table 5 shows the number of PSPs issued and

proceeds raised for general charitable fund-raising activities from

April 2012 to September 2016.

Note 14: The LFAC is chaired by the Director of Social Welfare, and comprisesrepresentatives from the Labour and Welfare Bureau and members from thesocial welfare, academic, professional and business sectors as appointed by theSecretary for Labour and Welfare. It is the advisory body to the SWD inadvising the Director of Social Welfare on applications for allocations from theLotteries Fund and on charitable fund-raising activities. The LFAC holdsmeetings once every two months.

Note 15: For example, the validity period of PSPs for setting up fixed donation boxes atlocations (such as hospitals) can be up to one year, while that of PSPs formoving around solicitation with donation boxes/bags varies depending onvarious factors including the consent of the management authority of the venuefor the fund-raising activities.


— 27 —

Table 4

Number of PSPs issued and proceeds raised for flag days(April 2012 to September 2016)

Flag days

Year

2012-13 2013-14 2014-15 2015-16 2016-17(Up to

September2016)(Note)

Territory-wide

Eligibleapplications (No.)

60 60 65 61 63

PSPs issued (No.) 30 30 30 30 29

Gross proceeds($ million)

63 59 60 64 13

Net proceeds($ million)

59 55 56 60 12

Regional Eligibleapplications (No.)

142 143 135 133 135

PSPs issued (No.) 87 87 87 90 87


54 54 54 55 19


51 51 50 52 17

Total Eligibleapplications (No.)

202 203 200 194 198

PSPs issued (No.) 117 117 117 120 116


117 113 114 119 32


110 106 106 112 29

Source: Audit analysis of SWD records

Note: Among the 116 PSPs issued, 65 flag-day fund-raising activities had been conducted upto 30 September 2016, and information on gross and net proceeds of 43 activities hadbeen submitted to the SWD (see para. 3.4(a)).


— 28 —

Table 5

Number of PSPs issued and proceeds raised forgeneral charitable fund-raising activities

(April 2012 to September 2016)

Year

General charitablefund-raising activities

PSPs Gross proceeds Net proceeds(Note 1)

(No.) ($ million) ($ million)

2012-13 400 115 82

2013-14 447 90 74

2014-15 376 78 62

2015-16 365 69 53

2016-17(Up to

September 2016)

154(Note 2)

8 4


Note 1: For the deficit cases where expenses exceeded gross proceeds (see Note 1 toTable 6 in para. 3.18), the deficits were not counted towards the total netproceeds for each year.

Note 2: Up to 30 September 2016, among the 154 PSPs issued, fund-raising activitiesapproved under 108 PSPs had been completed and information on gross andnet proceeds of 54 activities had been submitted to the SWD (seepara. 3.4(a)).

3.3 Based on the figures for 2012-13 to 2015-16 in Tables 4 and 5, for flag

days, the number of PSPs issued averaged 118 each year, and the gross proceeds

raised averaged $2 million for each territory-wide flag day and $0.6 million for each

regional flag day. For general charitable fund-raising activities, the number of PSPs

issued and the gross proceeds raised averaged 397 each year and $0.22 million for

each PSP respectively.


— 29 —

3.4 Permit conditions. To ensure the proper conduct and financial

accountability of charitable fund-raising activities, various conditions governing the

operation and accountability are stipulated in the PSPs for both flag days and

general charitable fund-raising activities. For example, regarding the operation of

general charitable fund-raising activities, permittees should display the permits

prominently at approved locations to inform the public of the SWD’s approval.

Regarding accountability, the salient permit conditions stipulate that:

(a) the permittee shall be accountable for the funds raised and disbursement

made in relation to the PSP. It is required to prepare an income and

expenditure account, including all the income from public donation and a

detailed breakdown of each disbursement item for audit by a Certified

Public Accountant (CPA). The report prepared in accordance with

Practice Note 850 issued by the Hong Kong Institute of Certified Public

Accountants (HKICPA) is deemed acceptable for compliance with the

relevant permit conditions by the SWD. The income and expenditure

account together with the auditor’s report (collectively referred to as the

audited report by the SWD) should be submitted to the SWD within

90 days of the last event day;

(b) within 90 days of the last event day, the permittee shall cause the balance

of the donations (after deducting any expenses incurred) to be

(i) used for the purposes specified in the permit; or (ii) credited to a bank

account; and

(c) within 90 days of the last event day, the permittee shall publish the

audited report either on its website, in its annual report, newsletter or

special circular to its members.

3.5 PSP permittees are required to comply with the permit conditions.

Whenever non-compliance is substantiated, the SWD will issue written

reminders/warnings to the permittees concerned. For permittees which fail to

submit the audited report according to permit conditions, the SWD will suspend

their new PSP applications until all the required documents are received and

checked in order. If the audited report is still outstanding after the issue of written

reminders/warnings by the SWD, the non-compliant permittee will be put on a

withholding list, i.e. the processing of its new PSP applications, if any, will be


— 30 —

withheld. For serious violation, the SWD will revoke its ongoing PSPs. For cases

that are suspected to have contravened the law (Note 16), the SWD will refer them

to the HKPF for investigation (see para. 1.8(c)). For flag-day applications, the

eligibility of applicant organisations with outstanding audited reports or record of

delay in submission of audited reports will be considered by a vetting panel set up

by the LFAC during the annual allocation exercise.

3.6 SWD’s monitoring mechanism. The SWD has developed a monitoring

mechanism to ensure that flag days and general charitable fund-raising activities in

public places are conducted in a proper manner. The monitoring measures include:

(a) setting conditions in the PSPs for compliance by permittees (see

para. 3.4). The purposes of these permit conditions are mainly to

maintain order and discipline in public places during the fund-raising

events and to improve the transparency and accountability of their

activities;

(b) putting in place a complaint mechanism to address non-compliance with

permit conditions and unauthorised fund-raising activities. As mentioned

in paragraph 3.5, the SWD will either issue written reminders/warnings

to permittees, revoke the PSPs issued or suspend issuing new PSPs to

non-compliant permittees (Note 17). Since 2015, to step up monitoring of

general charitable fund-raising activities, the SWD has also been

conducting random on-site inspections (see para. 3.14) and sample

checking of annual audited financial statements of selected permittees to

ensure their proper use of proceeds upon completion of fund-raising

activities; and

(c) encouraging charitable organisations to adopt the Reference Guide and the

Guidance Note in organising flag days and general charitable fund-raising

activities (see para. 2.6).

Note 16: According to section 4 of the Summary Offences Ordinance, any person whowithout lawful authority or excuse carries out fund-raising activities in publicplaces except under and in accordance with the PSPs shall be liable to a fine of$2,000 or to imprisonment for 3 months.

Note 17: Of the 103 complaints received from April 2015 to September 2016, writtenreminders/alert letters/warning letters were issued for 33 (32%) cases.


— 31 —

3.7 Measures to enhance transparency and accountability of fund-raising

activities. With the increasing public concern and expectation of the transparency

and accountability of charitable fund-raising activities, the SWD, on the advice of

the LFAC, has regularly reviewed the monitoring mechanism. Improvement

measures to step up controls and monitoring of fund-raising activities arising from

these reviews included the following:

(a) in August 2011, “six administrative measures” were implemented

requiring, among other things, permittees to publish audited reports of the

approved fund-raising activities on their websites or through other means

(see para. 3.4(c)), and to make available these documents for public

inspection upon request;

(b) in April 2014, another “five new initiatives” came into effect. For

establishing a structured vetting mechanism with reference to the track

record of PSP applicants, applicant organisations should submit in their

applications a three-year track record of their charitable activities together

with their annual audited financial statements for vetting by the SWD; and

(c) in January 2017, the LFAC endorsed further measures to promote easy

identification of approved activities and enhance financial transparency.

In particular, fund-raisers need to wear identity badges during the

fund-raising activities, and charitable organisations need to report

donation income received in respect of the approved PSP activities in their

annual audited financial statements. Charitable organisations are

encouraged to upload their annual audited financial statements onto their

websites for public inspection. These measures are expected to be

implemented within the second quarter of 2017.


Need to issue guidelines on the scope of PSP

3.8 Under the Summary Offences Ordinance, a PSP is required only if the

activities involve collection of money or sale or exchange for donations of badges,

tokens or similar articles in public places (see para. 3.2). In processing PSP

applications, the SWD needs to ensure that the charitable fund-raising activities to

be organised fall within the scope of such statutory requirement. According to the

SWD, given the wide varieties of fund-raising activities and the changes in their


— 32 —

modes of collection of donations, the SWD has from time to time sought the

Department of Justice (DoJ)’s advice on whether a particular PSP application based

on its individual circumstances is under the scope of the Ordinance. In this

connection, the Lotteries Fund Projects Section of the SWD has since 1988

maintained a database of legal advice obtained on fund-raising activities to provide

useful reference for its staff in processing PSP applications.

3.9 According to the database, up to September 2016, the SWD had obtained

the DoJ’s advice for about 300 times mainly on the interpretation of the following

legal terms of the Summary Offences Ordinance as applicable to individual PSP

applications:

(a) whether the venue under application fell within the definition of a

“public place” under the Ordinance (Note 18);

(b) whether the charity sale items under application constituted “badges,

tokens, or similar articles”; and

(c) whether the transaction under application involved “collection of money”

(Note 19).

3.10 Audit noted that the number of requests for the DoJ’s clarification had

decreased in recent years, totalling 21 from 2012-13 to 2015-16, indicating that the

SWD had built up the experience in processing PSP applications based on the

database of past legal advice obtained. Drawing on this experience, the SWD

should explore the feasibility of issuing more guidelines for reference by applicants,

and in this connection seek further legal advice from the DoJ where appropriate.

This would facilitate charitable organisations in determining the relevance of PSP to

Note 18: According to the SWD, based on the DoJ’s advice, whether a place is a“public place” may be subject to interpretations. For example, it may depend onaccessibility to the public to determine if it can be classified as a “passage” inthe Ordinance.

Note 19: The meaning of “collection of money” is not defined in the Summary OffencesOrdinance. The DoJ had advised the SWD that only effecting of payment(including cash and electronic payment) on the spot was under the scope of PSPs.


— 33 —

their activities before filing their applications which in turn would help the SWD

reduce its workload on processing unwarranted applications.


3.11 Permittees’ compliance with the permit conditions is important to ensure

the proper conduct and accountability of charitable fund-raising activities. Audit’s

examination of the general charitable fund-raising activities with PSPs issued from

April 2012 to September 2016 has revealed cases of non-compliance, as elaborated

in paragraphs 3.12 to 3.14.

3.12 Delays in submission of audited reports. The requirement on filing

audited reports on time is intended to enhance the transparency and accountability of

the charitable organisations in relation to the funds they raised from the public.

Permittees are required to submit audited reports within 90 days of the last event

day (see para. 3.4(a)). From April 2012 to September 2016, audited reports for

1,497 cases were due for submission by 325 permittees. Audit’s analysis has

revealed that:

(a) audited reports of 15 (1%) cases were outstanding as at

30 September 2016, of which 6 were long overdue, ranging from 216 to

429 days (averaging 342 days);

(b) for the remaining 1,482 cases (99%) with audited reports submitted on or

before 30 September 2016:

(i) there were delays in submission of 658 (44%) reports, averaging

43 days; and

(ii) of the 658 late reports, 76 (12%) were late for more than

3 months. In one case, the permittee submitted the audited report

4 years after the last event day; and

(c) the 82 (6+76) longer delay cases mentioned in (a) and (b)(ii) above

involved 64 (20%) of the 325 permittees, and 13 (4%) of them failed to

submit the audited reports within 90 days of the last event day repeatedly,

i.e. for two to four times.


— 34 —

Notwithstanding the SWD’s follow-up mechanism (see para. 3.5), the cases of delay

in submission of audited reports noted above indicate the need to step up

enforcement actions, especially for those permittees with repeated cases of

non-compliance.

3.13 Fund-raising by organisations on the withholding list. As of

September 2016, there were 8 organisations on the withholding list because of their

non-compliance with the permit conditions of 14 PSPs after repeated reminders and

warnings (see para. 3.5). Audit’s examination revealed that all 8 organisations had

not been issued any PSPs since being placed on the withholding list, but 7 of them

had continued to raise funds on their websites and through other activities which

were outside the purview of the SWD (Note 20). Case 1 is an example.

Case 1

Fund-raising by organisations on the withholding list

1. Organisation A was granted 27 PSPs for conducting general charitable

fund-raising activities from April 2012 to August 2015, including three PSPs

granted in February, April and June 2015 respectively. After the approval of

the June 2015 PSP, the SWD noted an expense without full justifications in the

audited report of a previous PSP (granted in 2014), and that the audited report

for the February 2015 PSP was overdue. As the June 2015 PSP had already

been approved, the fund-raising activities were conducted as scheduled.

(to be continued)

Note 20: The remaining organisation did not have a website and no information wasavailable on whether it had continued to raise donations through other meansafter being put on the SWD’s withholding list.


— 35 —

Case 1 (Cont’d)

2. In the event, Organisation A also did not submit the audited reports for

the April and June 2015 PSPs, i.e. a total of three audited reports (including the

one for February 2015 PSP) were outstanding. As a result, the SWD put

Organisation A onto its withholding list in February 2016 after the issue of

four reminders. In May 2016, Organisation A replied to the SWD that because

of poor donation income, it could not afford the audit fee and therefore no

audited reports for the three PSPs would be prepared.

3. Audit findings. Audit found that:

(a) the Chairman of Organisation A had also set up another charity

(Organisation B). It was also granted 22 PSPs from April 2012 to

July 2015 for conducting fund-raising activities similar to those of

Organisation A. In January 2016, Organisation B was put on the

SWD’s withholding list as it also had not submitted audited reports

which were due for submission in August 2015; and

(b) both Organisations A and B were on the IRD’s list of tax-exempt

charities as at September 2016 and had continued to appeal for

donations through their websites and other fund-raising activities

(e.g. organising a fund-raising music concert).

4. Audit comments. While Organisations A and B had been suspended

from conducting general charitable fund-raising activities in public places by the

SWD, they continued to raise donations through other means not regulated by

the Government. In this connection, Audit noted that the SWD had obtained the

DoJ’s advice that publication of information on breach of permit conditions

rested with the SWD’s consideration of the seriousness of the case, the harm or

prejudice that could result to the organisation and the public interest involved.

To enable the public to make an informed choice when making donations

(see para. 2.4(b)), the SWD needs to consider publicising information on serious

or repeated non-compliance with PSP conditions after warnings.

Source: Audit analysis of SWD and IRD records


— 36 —

3.14 Inspection of fund-raising activities. Since June 2015, the SWD has

been conducting random on-site inspections on general charitable fund-raising

activities. Up to September 2016, 60 activities had been inspected. Based on the

SWD’s inspection records, Audit noted the following issues:

(a) Need to take concerted actions on repeated “no-show” cases. Use of

public places (especially those with high pedestrian flow) for charitable

fund-raising activities was in high demand. Based on a sample check of

65 applications for temporary occupation of unleased land for setting up

counters or booths in 2,109 locations for fund-raising purposes received

by the Lands D in 2016, Audit found that the applications for

1,059 (50%) locations had been rejected and one of the common reasons

was that the locations applied for had already been allocated to another

organisation. During the SWD’s inspections of 30 (50%) of the

60 activities, no fund-raising activities were found at the approved

locations. The high percentage of “no-show” cases indicates an

ineffective use of public resources as other charities are deprived of the

opportunity to use the places for organising their activities. Audit noted

that while the SWD had taken follow-up actions on “no-show” cases,

such as making enquiry with the permittees concerned (Note 21 ) and

giving verbal warnings or issuing alert letters in some of the cases, there

was still recurrence of such situation. Among the inspected cases,

7 organisations had been repeatedly found not carrying out any

fund-raising activities during the time of inspections. In this connection,

Audit noted that the FEHD also conducted inspections of the licensed

fund-raising activities (see paras. 5.9 to 5.11). The SWD needs to liaise

with the FEHD and the Lands D on the feasibility of sharing enforcement

information and taking concerted actions on repeated “no-show” cases

without valid reasons; and

(b) No display of PSPs. Permittees are required to display the permits

prominently at the approved locations of the fund-raising activities so as

to inform the public of the SWD’s approval in accordance with the permit

Note 21: According to the SWD, most of the permittees in question attributed theirabsence at the inspected locations to unanticipated bad weather forecast andunforeseeable manpower shortage (e.g. unanticipated absence of fund-raiserswhich rendered only one fund-raiser available that eventually led to the call-offof event due to security concern), whilst a few permittees explained that thefund-raising activities had ended before the SWD’s officers’ arrival at thelocations or started after the officers’ departure.


— 37 —

condition (see para. 3.4). Of the remaining 30 activities inspected by the

SWD, the permittees of 11 activities (37%) failed to display the permits

prominently at the approved locations. According to the SWD, most if

not all of the permittees concerned had in fact brought along the permits

(e.g. kept inside a file jacket) during the inspections. The SWD should

continue its efforts in reminding the permittees of the requirement.

Monitoring of charitable fund-raising activitiesunder public subscription permits

3.15 Reference Guide. In December 2014, the SWD updated the Reference

Guide (first promulgated in November 2004) to enhance governance, transparency

and accountability, covering donors’ rights, fund-raising practices and financial

reporting for the voluntary adoption by charitable organisations (see para. 2.6 and

Appendix A). On financial accountability, the updated Reference Guide includes

the following major clauses:

(a) annual financial reports should be factual and accurate in all material

respects and externally audited, disclosing information such as the total

revenue and total expense of fund-raising events;

(b) it is a good practice to make the financial statements of individual projects

available to the public. The statements shall be factual and accurate in all

material respects, disclosing information which includes the total revenue

and total expenses of fund-raising events, and the uses of the net proceeds,

and be prepared in accordance with the generally accepted accounting

principles and standards established by the HKICPA; and

(c) no more should be spent on administration and fund-raising than is

required to ensure effective management and resource development.

Permittees are recommended to ensure that fund-raising costs and

administration costs should be reasonable, and that the greatest amount

should be devoted to charitable programmes. A charitable organisation

should as far as practicable disclose the ratio of costs to total revenue for

donors’ reference.


— 38 —

3.16 Guidance Note. Updated in November 2004, the Guidance Note

(see Appendix B) proposes some basic controls to charitable organisations with a

view to ensuring that the income generated from charitable fund-raising activities is

spent for the professed or stated purpose, and that such income and expenses are

properly documented. For example, organisations should make regular checks and

surprise inspections to ensure that records are being accurately maintained. For

charity sale of commodities, the sale proceeds should be regularly counted and

recorded in the presence of at least two authorised persons.

High administration costs in some fund-raising activities

3.17 No ceiling on fund-raising expenses for general charitable fund-raising

activities. For PSPs for flag days, the SWD imposes a permit condition that the

fund-raising expenses should not exceed 10% of the gross proceeds. However, the

SWD does not set similar requirement for PSPs for general charitable fund-raising

activities. In a review in 2010, some members of the LFAC proposed to limit

fund-raising expenses to 20% of gross proceeds and to suspend new applications for

PSP from organisations that had previously conducted loss-making events for a

certain period of time. As there were comments that an across-the-board ceiling

was not practical for the wide-ranging activities, the proposal had not been

implemented. The current Reference Guide only recommends that fund-raising

costs and administration costs should be reasonable, and that the greatest amount

should be devoted to charitable programmes (see para. 3.15(c)).

3.18 High expenses in some fund-raising activities. According to the audited

reports received by the SWD, the percentage of fund-raising expenses to gross

proceeds of general charitable fund-raising activities varied significantly. Table 6

shows the percentages of expenses to gross proceeds of general charitable

fund-raising activities under PSPs for the past four years from 2012-13 to 2015-16.


— 39 —

Table 6

Percentages of expenses to gross proceedsof general charitable fund-raising activities under PSPs

(2012-13 to 2015-16)

Percentage ofexpensesto grossproceeds

Number of general charitable fund-raising activities under PSPs

2012-13 2013-14 2014-15 2015-16

0% – 20% 231 (64%) 286 (70%) 230 (66%) 209 (67%)

> 20% – 40% 50 (14%) 40 (10%) 41 (12%) 42 (14%)

> 40% – 60% 39 (11%) 38 (9%) 31 (9%) 24 (8%)

> 60% – 80% 16 (4%) 21 (5%) 15 (4%) 10 (3%)

> 80% – 100% 11 (3%) 6 (1%) 14 (4%) 13 (4%)

Deficit (Note 1) 14 (4%) 19 (5%) 17 (5%) 13 (4%)

Total (Note 2) 361 (100%) 410 (100%) 348 (100%) 311 (100%)

Total grossproceeds($ million)

115 90 78 69

Total expenses($ million)

34 20 21 20

Overallpercentage ofexpenses togross proceeds(Note 3)

30% 22% 27% 29%


Note 1: According to the SWD, the majority of the 63 deficit cases (i.e. expenses exceeding grossproceeds) were large-scale events (such as ceremonies/concerts) which involved a higher levelof production/marketing costs.

Note 2: The total number of PSPs is smaller than that in Table 5 in paragraph 3.2 because somepermittees had not submitted audited reports, or they had extended their PSPs by applying foradditional PSPs (e.g. longer duration of events or more venues). In the latter case, the SWDhad allowed them to submit one audited report for the same event under two or more PSPs.

Note 3: According to the SWD, the increase in the overall percentage from 2013-14 to 2015-16 waspartly attributable to the drop in the total gross proceeds while the total expenses remainedcomparatively stable.

25% 29% 29%32%


— 40 —

3.19 Over the years, some LegCo Members and the public have raised

concerns about the high proportion of administrative fee charged as fund-raising

expenses, the low transparency of the donation money and also the use of the

donation income for other than the stated purposes. As shown in Table 6, the

overall percentages of expenses to gross proceeds for general charitable fund-raising

activities ranged from 22% to 30% during 2012-13 to 2015-16.

3.20 Audit selected 60 deficit cases (see Note 1 to Table 6 in para. 3.18) and

45 high expenses cases (i.e. percentages of expenses to gross proceeds exceeding

40%) relating to the fund-raising activities held from April 2012 to March 2016 for

examining their audited reports. Audit found that:

(a) of the 60 selected deficit cases, 50 were activities primarily for public

education or religious purposes (e.g. ceremonies/concerts for religious

purposes and carnivals for public education), and fund-raising only

formed a small part of the events. Therefore, most of the expenses were

related to the publicity/production of the events. However, for the

remaining 10 deficit cases, the activities of which were primarily

organised for raising funds for the organisations’ operation and

programme. The funds raised (ranging from $400 to $28,000) could not

cover the administration costs (including salary/allowance to fund-raisers,

transportation and audit fee), resulting in deficits ranging from $15 to

some $20,000; and

(b) the 45 high expenses cases were organised by 8 permittees. Audit’s

further analysis of the nature of expenses of these fund-raising activities

(see Appendix D) revealed that:

(i) for activities involving charity sale (see Permittees G and H at

Appendix D), about one-fourth of the proceeds were spent on the

cost of items sold; and

(ii) 4 of the 8 permittees (Permittees B, C, E and F at Appendix D)had spent more than 30% of their donation proceeds on hiringfund-raisers or paying allowance to volunteers for the on-streetfund-raising activities.


— 41 —

3.21 High administration costs of fund-raising activities reduce the amount of

donations that can reach the final beneficiaries for the designated purposes. At

present, the SWD imposes a permit condition that the fund-raising expenses of a

flag day should not exceed 10% of the gross proceeds, but not for general charitable

fund-raising activities. According to the SWD, it might not be practical to set an

across-the-board ceiling for all general charitable fund-raising activities given the

diversity of their nature and mode of operation (see para. 3.17), and the absence of

a commonly agreed definition of “administration costs” of a fund-raising activity.

However, to address the public concerns over high administration costs, the

feasibility of defining the term “administration costs” with a view to setting an

expenses ceiling as a PSP condition for on-street general charitable fund-raising

activities which are similar in nature to flag days should be explored.

Limitations of audited reports of PSP fund-raising activities

3.22 Practice Note issued by the HKICPA. The HKICPA has issued Practice

Note 850 for CPAs on the review of accounts for flag days and general charitable

fund-raising activities (Note 22). The SWD has also uploaded onto its website a

sample of the income and expenditure accounts for approved fund-raising activities

(see Appendix E). The permittees should draw reference to this sample to report all

monies and all sorts of expenses in relation to the activities covered by the PSPs.

According to Practice Note 850, the CPA will give an assurance on whether

anything has come to the CPA’s attention that the income and expenditure account

does not reflect, in all material respects, the gross subscription raised and the

expenses incurred by the permittee in respect of an event that has been recorded in

its books and records made available to the CPA in accordance with the basis of

preparation.

3.23 Limitations of audited reports. The SWD does not specify the use of

cash-based or accrual-based accounts for PSP fund-raising activities. Of the

accounts for 105 fund-raising activities (i.e. the 60 deficit cases and 45 high

expenses cases mentioned in paragraph 3.20), 29 (28%) were prepared on a cash

basis. Also, the SWD does not require the audited reports to provide an assurance

on the compliance with the permit condition of depositing the net proceeds into a

Note 22: The HKICPA first issued in 1999 Practice Note 850 for CPAs on the review ofaccounts for flag days. It also issued a circular in 2007 on reporting on generalcharitable fund-raising activities. These were consolidated to form the currentPractice Note 850 in 2014.


— 42 —

bank account within 90 days from the last event day (see para. 3.4(b)). Audit noted

a case (Case 2) which raised concern over the limitations of audited reports in these

two aspects.

Case 2

Limitations of audited reports

1. Based on the audited reports received in December 2010 andMarch 2011, the SWD noted that cash receipts of some $256,000 were retainedby the founder of the charity (Organisation C), instead of being banked inwithin 90 days from the last event day in accordance with the permit condition(see para. 3.4(b)). Upon the SWD’s enquiry, the founder claimed that some$82,000 in cash was retained for paying consultancy fee for the relatedfund-raising activities, and the rest would be used for daily operation expenses.According to Organisation C, the consultancy fee was an accrued expense notrecorded in the accounts prepared on a cash basis and was only paid inMarch 2011.

Audit comments

2. Organisation C did not comply with the permit condition of depositingthe net proceeds into a bank account within 90 days from the last event day.Moreover, due to the use of cash-based accounting, the audited reports of theevents could not reflect the accrued expense, thus resulting in an overstatementof the net proceeds.

3. Need to check compliance with bank-in requirement. The HKICPA’sPractice Note 850 has not specifically required CPAs to verify compliance withthe permit condition of depositing the net proceeds into a bank account within90 days from the last event day. Therefore, there is no assurance oncompliance with the permit condition. In Audit’s view, the SWD needs to takemeasures to monitor permittees’ compliance with the condition, such asstrengthening its compliance checking on such requirement, or requiring thepermittees to engage CPAs to provide assurance on the compliance with suchcondition in the audited reports.

4. Need to prepare accounts on an accrual basis. The SWD has notspecified whether the accounts of fund-raising activities should be prepared onan accrual basis. In the event, the accrued expense of $82,000 in this case wasnot included in the cash-based accounts as it was disbursed after the report hadbeen prepared. As a result, the expenses were understated. The SWD needs toconsider requiring permittees to prepare their accounts on an accrual basis.



— 43 —

Need to facilitate public access tofinancial information of fund-raising activities

3.24 Currently, under the PSP conditions, a charitable organisation is required

to publish the audited report for a fund-raising activity within 90 days from the last

event day for 6 months. This could be done either on its website or in its annual

report/newsletter/special circular to its members (see para. 3.4(c)). Audit found

that most permittees had chosen to publish the audited reports on their own

websites. However, as the layout of their websites varies, the audited reports may

not be easily located by the general public. In view of the concerns of

LegCo Members and the public over the high administration costs of fund-raising

activities (see para. 3.19) and the difficulties for members of the public to obtain

such information, the SWD needs to consider publicising such information on its

website or the one-stop finder on “GovHK”, such as providing key financial

information (e.g. amount of funds raised, use of donation proceeds and percentages

of expenses to gross proceeds) or providing website links to the audited reports, to

enhance transparency of such activities.


3.25 Audit has recommended that the Director of Social Welfare should:


(a) explore the feasibility of issuing more guidelines on the scope of the

PSP under section 4(17)(i) of the Summary Offences Ordinance for

reference by applicants, and in this connection seek further legal

advice from the DoJ where appropriate;


(b) step up enforcement actions on cases of repeated non-compliance with

the permit conditions on submission of audited reports, such as

considering publicising information on serious or repeated cases of

non-compliance with permit conditions after warnings;


— 44 —

(c) in collaboration with the Director of Food and Environmental

Hygiene and the Director of Lands, explore the feasibility of sharing

enforcement information on charitable fund-raising activities held in

public places and taking concerted actions on repeated “no-show”

cases without valid reasons;

(d) continue the SWD’s efforts to remind permittees of the permit

condition on displaying the permits prominently at the approved

locations of the fund-raising activities;

Monitoring of charitable fund-raising activities under PSPs

(e) explore the feasibility of defining the term “administration costs” with

a view to setting an expenses ceiling for on-street general charitable

fund-raising activities which are similar in nature to flag days;

(f) take measures to monitor permittees’ compliance with the permit

condition that net proceeds should be deposited into a bank account

within 90 days from the last event day;

(g) consider requiring permittees to prepare their income and

expenditure accounts of fund-raising activities on an accrual basis to

ensure that all relevant income and expenditure are properly

accounted for; and

(h) consider publicising on the SWD’s website or the one-stop finder on

“GovHK” key financial information (e.g. amount of funds raised, use

of donation proceeds and percentages of expenses to gross proceeds)

or providing website links to the audited reports of fund-raising

activities to enhance transparency of such activities.


— 45 —


3.26 The Director of Social Welfare generally agrees with the audit

recommendations. She has said that the SWD will:

(a) sustain the efforts to remind permittees of the permit condition on

displaying the permits prominently at the approved locations of the

fund-raising activities;

(b) examine the feasibility of issuing general guidelines on the scope of the

PSP;

(c) consider publicising information on non-compliance with permit

conditions on submission of audited reports; and

(d) examine the existing accounting requirements for charitable fund-raising

activities in public places.


the audit recommendation in paragraph 3.25(c).

— 46 —

PART 4: ADMINISTRATION OF LOTTERY LICENCESFOR CHARITABLE FUND-RAISINGACTIVITIES

4.1 This PART examines the work of the HAD in administering lottery

licences for charitable fund-raising activities.

Lottery licences

4.2 The Gambling Ordinance is the law relating to gambling, betting, gaming,

gambling establishments and lotteries. Five types of licences are issued under the

Ordinance, namely the amusements with prizes licence, lottery licence, mahjong/tin

kau licence, tombola licence and trade promotion competition licence. Under the

Ordinance, anyone who wishes to conduct a lottery event (Note 23) has to apply for

a lottery licence from the Entertainment Licensing Team (Note 24 ) under the

Office of the Licensing Authority of the HAD (see Appendix F for an extract of the

HAD’s organisation chart). Applicants are advised to apply for a lottery licence at

least three calendar weeks in advance. Lottery licences are issued to bona-fide

organisations (Note 25) to conduct lottery ticket sales for raising funds to meet the

organisations’ operating expenses and/or for making donations to tax-exempt

charities. A lottery organiser is required to seek prior approval from the HAD if it

Note 23: The term “lottery” as defined in section 2 of the Gambling Ordinance includes:a raffle; a sweepstake; any competition for money or other property success inwhich: (a) involves guessing or estimating the results of future events, or of pastevents the results of which are not generally known; or (b) does not depend to asubstantial degree upon the exercise of skill by the competitors; and any game,method, device or scheme for distributing or allotting prizes by lot or chance.

Note 24: The Entertainment Licensing Team, which is led by a Chief Executive Officer, isresponsible for issuing various entertainment licences, including lottery licencesunder the Gambling Ordinance. One Licensing Officer, assisted by two clericalstaff and supervised by one Senior Licensing Officer, is responsible forprocessing and monitoring lottery licences.

Note 25: If an applicant organisation is a tax-exempt charity, it may apply for a waiver ofthe licence fee of $3,165. Alternatively, an applicant organisation may apply fora refund of the licence fee if at least 75% of the net proceeds have beenappropriated to another tax-exempt charity.

Administration of lottery licences forcharitable fund-raising activities

— 47 —

plans to sell lottery tickets on public streets. The number of lottery licences granted

for charitable fund-raising purposes and the proceeds received from April 2012 to

September 2016 are shown in Table 7. Based on the figures for 2012-13 to

2015-16, the number of lottery licences issued averaged 66 each year and the gross

proceeds averaged $86 million each year.

Table 7

Number of lottery licences granted and proceeds received(April 2012 to September 2016)

YearNumber of licences granted

(with prior approval forsale on public streets)

Gross proceeds Net proceeds

($ million)

2012-13(Note 1)

66 (13) 82 79

2013-14 69 (17) 85 82

2014-15 68 (16) 90 87

2015-16 60 (16) 88 85

2016-17(Up to

September 2016)

23 (8)(Note 2)

7 7

Source: HAD records

Note 1: In April 2012, the HAD took over the responsibility for issuing lottery licencesfrom the former Television and Entertainment Licensing Authority (see Note 7 topara. 1.4(b)).

Note 2: Up to September 2016, while 23 lottery licences had been granted, only 11 lotteryaccounts with information on gross and net proceeds had been submitted to theHAD (see Item (b) in Table 8 in para. 4.4).

4.3 Licensees are required to comply with a number of licence conditions,

which are legal requirements under the Gambling Ordinance. A breach of the

263


— 48 —

licence condition is an offence which may result in the licence being revoked and

prosecution (Note 26). Such licence conditions can be classified into four types:

(a) conditions to be complied with upon application for a lottery licence

(e.g. no cash prize shall be offered or distributed and every lottery ticket

should be numbered serially);

(b) conditions to be complied with when conducting a lottery event (e.g.

providing collection bags or boxes with security safeguards and printed

name of the organisation for use by collectors);

(c) conditions to which a lottery licence is subject upon the completion of the

lottery event (e.g. submission of required documents — see Table 8 in

para. 4.4); and

(d) conditions to be complied with upon approval of the sale of lottery tickets

on public streets (e.g. prominently displaying the name of the organiser at

each sale location).

In addition to licence conditions, the licensee should ensure that other administrative

requirements stipulated by the HAD are fully met. Among others, the licensee is

required to keep the administration costs of the lottery event as low as possible,

which should not be more than 20% of the total proceeds received from the sale of

lottery tickets.

Monitoring of charitable lottery events

4.4 Upon completion of a lottery event, the licensee is required under the

licence conditions to submit to the HAD certain documents (such as the lottery

accounts — see Table 8) within the due dates stipulated in the licence.

Note 26: According to the Gambling Ordinance, where a licence condition is contravened,unless the licensee proves that the contravention occurred without his consent orconnivance and that he has exercised all due diligence to prevent it, the licenseecommits an offence and is liable on conviction to a fine of $50,000 and toimprisonment for 2 years.


— 49 —

Table 8

Documents required to be submitted upon completion of a lottery event

Required documentsDue date

(from the date of thedraw of the lottery)

(a) A copy of the newspaper cuttings showing the detailsof the result of the lottery

Within 10 days

(b) A copy of the income and expenditure account of thelottery event and the review report (Note) made by aCPA on the income and expenditure account of thelottery event (hereinafter referred to as the lotteryaccount)

Within 90 days(c) A copy of the cash count record jointly signed by thecounting staff/volunteers and the witness persons

(d) Official receipt(s) in respect of the net proceeds ofthe lottery from the organisation(s) receiving thedonation (hereinafter referred to as the donationreceipt)

(e) If the net proceeds of the lottery are used for meetingthe expenditure of the licensee, a copy of the auditedannual financial statement of the licensee, whichshould show the income and expenditure of thelottery and the whereabouts of the net proceeds (inthe form of “note to account” if appropriate)

Within 1 year

Source: HAD records

Note: According to the licence condition, the CPA should state in the review report thatin the opinion of the CPA, the income and expenditure account of the lottery eventis properly prepared from the books and records of the licensee made available tothe CPA, and no matter has come to the attention of the CPA which indicates thatthe income and expenditure account of the lottery event does not accurately reflectall the moneys collected or received from the sale of lottery tickets and all thedisbursements made from the moneys so collected or received.


— 50 —

4.5 The HAD shall make available each lottery account received for public

inspection for a period of one year. The HAD publishes a list of lottery accounts

received on its website and a member of the public can make a request for

inspecting a lottery account in the HAD’s office by submitting a standard request

form via post or by fax. The purpose is to enhance the transparency and

accountability of the lottery events.

Late submission of documents

4.6 The HAD uses a computer system, namely the Licensing Information

System (LIS) for recording information relating to licence applications, including

the due dates and actual dates of receipt of all required documents, with the

exception of the cash count records (see Item (c) in Table 8 in para. 4.4). Audit

analysed the information in the LIS as of October 2016 for the 263 lottery licences

granted from 2012-13 to 2015-16 (see Table 7 in para. 4.2) and found that there

were delays in submission of required documents by the licensees, as follows:

(a) for 197 (75% of 263) licences, the newspaper cuttings of the lottery

results were submitted late, for over three months in 51 (26% of 197)

cases (the longest delay was 512 days);

(b) for 120 (46% of 263) licences, the lottery accounts were submitted late,

for over three months in 17 (14% of 120) cases (the longest delay was

746 days);

(c) of the 263 lottery licences granted, 153 licences required the submission

of audited annual financial statements (see item (e) in Table 8 in

para. 4.4). There were delays in submitting audited annual financial

statements for 106 (69%) licences including 71 (46%) for over

three months (the longest delay was 645 days). In addition, the audited

annual financial statements for 6 (4%) licences had been overdue for more

than three months up to October 2016; and

(d) of the 263 lottery licences granted, 100 licences required the submission

of donation receipts (see item (d) in Table 8 in para. 4.4). There were

delays in submitting the donation receipts for 65 (65%) licences, including

32 (32%) for over three months (the longest delay was 540 days).


— 51 —

For cash count records, as no information on the due dates and actual dates of

receipt is recorded in the LIS, Audit selected 30 licences granted from 2012-13 to

2015-16 for examination and found that in 25 (83%) cases, the licensees submitted

the cash count records late, including 21 (70%) for over three months (the longest

delay was 547 days).

Inadequate follow-up actions on outstanding documents

4.7 According to the HAD’s internal guidelines (set by the former Television

and Entertainment Licensing Authority before the licensing work was taken over by

the HAD in April 2012), if a licensee does not submit the required documents

(see Table 8 in para. 4.4) on or before the due dates as stipulated in the licence,

two reminders and a warning letter will be issued in the following manner:

(a) for Items (a) to (d) in Table 8, the first reminder, second reminder and a

warning letter will be issued 14 days, 21 days and 28 days respectively

after the due dates; and

(b) for Item (e) in Table 8, the first reminder, second reminder and a warning

letter will be issued 14 days, 28 days and 35 days respectively after the

due dates.

4.8 Audit analysed the information in the LIS relating to the issue of

reminders and warning letters for the lottery licences from 2012-13 to 2015-16 and

found that HAD staff had not followed the internal guidelines in issuing reminders

and warning letters. For example, Audit’s analysis of the issue of reminders and

warning letters (see para. 4.7(a)) for 10 lottery accounts which had been overdue for

over 180 days before submission to the HAD revealed that:

(a) in one case, no reminders or warning letter had been issued to the

licensee;

(b) in two cases, there were delays in issuing reminders/warning letters. The

first reminder, second reminder and the warning letter were issued

125 days, 287 days and 374 days respectively after the due date in the

first case. In the second case, the first and second reminders were issued

110 days and 293 days respectively after the due date and no warning

letter was issued; and


— 52 —

(c) for the remaining 7 cases, the first reminders were issued to the licensees

18 to 196 days (averaging 107 days) after the due dates. No second

reminders or warning letters had been issued to the licensees.

4.9 In Audit’s view, timely submission of the required documents, especially

the lottery accounts, is important for making available the results and financial

information of lottery events for inspection by members of the public, including

donors. There is a need for the HAD to step up its monitoring of licensees’

compliance with the licence conditions, and consider taking suitable measures to

deter cases of repeated late submission of documents.

Need to enhance the computer system to facilitate monitoring work

4.10 The HAD has been using the LIS to record useful information relating to

the lottery licence applications, including the due dates and actual dates of receipt of

all required documents (with the exception of cash count records) under the licence

conditions, as well as the dates of issue of the first and second reminders and the

warning letters. However, the LIS could not generate exception reports to facilitate

HAD staff in following up the outstanding cases in a timely manner. As a result,

HAD staff currently use a separate spreadsheet to record and bring up the

outstanding cases for follow-up actions. In view of the observed delays in

submission of required documents and issuing of reminders and warning letters

(see paras. 4.6 and 4.8), the HAD should enhance the LIS to facilitate its

monitoring and follow-up work.

Need to ensure the use of proceedsis accounted for in submitted financial statements

4.11 Under the licence conditions, apart from the submission of the lottery

accounts within 90 days after the lottery event, if the net proceeds of the lottery are

used for meeting the expenditure of the licensee, a copy of the audited annual

financial statements of the licensee, which should show the income and expenditure

of the lottery and the whereabouts of the net proceeds should be submitted to the

HAD within one year (see Item (e) in Table 8 in para. 4.4). Audit examined the

audited annual financial statements submitted by licensees of 30 licences granted

from 2012-13 to 2015-16 and found that in 6 (20%) cases, the submitted statements

did not show separately the income and expenditure of their lottery events nor the

use of net proceeds. Audit found that in such cases, HAD staff accepted the


— 53 —

licensees’ explanation that the income and expenditure of the lottery events and the

use of net proceeds had been subsumed under other income and expenditure items in

the audited annual financial statements. The HAD needs to provide more guidance

to licensees and ensure their compliance with the relevant licence condition.

Need to facilitate public access to the lottery accounts

4.12 It is a licence condition that a licensee should submit a copy of the lottery

account. As mentioned in paragraph 4.5, the HAD publishes on its website a list of

lottery accounts received and a member of the public can make a request for

inspecting a lottery account in the HAD’s office by submitting a standard request

form via post or by fax. It is also stated on the request form that reproduction of

the whole or any part of the lottery account is not allowed. According to the HAD,

it has not received any request for inspecting the lottery accounts since taking over

the licensing responsibility in April 2012 (see Note 7 to para. 1.4(b)). In

Audit’s view, the HAD’s requirements for the public to inspect the lottery accounts

in the HAD’s office physically and not allowing making copies of the accounts do

not facilitate access and are not conducive to achieving the Government’s objective

of enhancing transparency and accountability of fund-raising activities (see

para. 2.4(a)).

4.13 According to the application guide issued by the HAD, lottery organisers

are encouraged to publicise their lottery accounts in their own publications or on

their own websites and/or make available copies of these documents at their offices

for public inspection. However, the HAD has not collected information to gauge

the extent of the lottery organisers’ publication of their lottery accounts. Audit

conducted a survey of the websites of 10 lottery organisers and found that none of

them had published the lottery accounts on their websites. With a view to

enhancing the transparency and accountability of lottery events, the HAD should

take measures to facilitate public access to the lottery accounts (e.g. providing direct

access to the lottery accounts on the HAD’s website or the one-stop finder on

“GovHK”).


— 54 —


4.14 Audit has recommended that the Director of Home Affairs should:

(a) step up monitoring of licensees’ compliance with the lottery licence

conditions, including the timely submission of required documents

upon completion of a lottery event, and consider taking suitable

measures to deter cases of repeated late submission of documents;

(b) enhance the LIS to facilitate the monitoring of licensees’ compliance

with the lottery licence conditions;

(c) provide more guidance to licensees and ensure their compliance with

the condition that the use of net proceeds is accounted for in the

financial statements; and

(d) take measures to facilitate public access to the lottery accounts.


4.15 The Director of Home Affairs agrees with the audit recommendations.

She has said that:

(a) the HAD will review the monitoring mechanism and consider suitable

measures to deter cases of repeated late submission of documents;

(b) the enhancement of the LIS will facilitate the monitoring of outstanding

documents from the licensees, thus relieving the stringent manpower

resources; and

(c) the HAD will consider providing more guidance to licensees for preparing

the annual financial statements.

— 55 —

PART 5: ADMINISTRATION OF TEMPORARYHAWKER LICENCES FOR FUND-RAISINGACTIVITIES INVOLVING ON-STREETSELLING

5.1 This PART examines the work of the FEHD in administering temporary

hawker licences for fund-raising activities involving on-street selling.

Temporary hawker licences

5.2 The FEHD is tasked to regulate public health and municipal services

under the Public Health and Municipal Services Ordinance. According to the

FEHD, it does not have a role to play in regulating fund-raising activities, unless

such activities involve hawking on the streets. The FEHD has stopped issuing

hawker licences under normal circumstances (Note 27) in a bid to gradually reduce

street trading and to minimise obstructions and nuisances created by hawking. If

charities or other non-profit-making organisations need to raise funds by way of

hawking of commodities (Note 28) in public streets, consideration would be given to

issuing temporary hawker licences. The main purpose of issuing temporary hawker

licences is to facilitate such organisations in raising funds and regulate such hawking

activities in public streets to ensure that they are conducted in a hygienic manner

and will not cause nuisances such as obstruction to public places. Under the

Hawker Regulation, the Director of Food and Environmental Hygiene may issue a

temporary hawker licence to a person who is authorised by the following

Note 27: Since the early 1970’s, the former Urban Council had stopped issuing newhawker licences under normal circumstances. Following the hawker licensingpolicy review concluded in early 2009, the Director of Food and EnvironmentalHygiene had, during the period from July 2009 to April 2012, completed theissuing of 218 new fixed-pitch (other classes) hawker licences and 61 newitinerant (frozen confectionery) hawker licences (see Note 29 to para. 5.2).

Note 28: According to the Hawker Regulation, commodities means any goods, wares, ormerchandise; and includes any samples and patterns of goods, wares, andmerchandise. Examples of commodities sold under temporary hawker licencesare stationery, accessories and books.


— 56 —

organisations to conduct fund-raising activities involving on-street selling of

commodities (Note 29):

(a) tax-exempt charities; or

(b) other non-profit-making organisations which are incorporated or

registered under the laws of Hong Kong (e.g. a company incorporated

under the Companies Ordinance, a society registered under the Societies

Ordinance, or a trade union registered under the Trade Unions Ordinance

(Cap. 332)).

Applications for temporary hawker licence should be made to the FEHD at least

12 working days before the start of the fund-raising activities. Licensees are

required to comply with the licence conditions (Note 30). Any non-compliance with

the licence conditions is an offence under the Hawker Regulation (Note 31) and the

FEHD may cancel the relevant licence. According to the FEHD, temporary hawker

licence applications for fund-raising for commercial or profit-making purposes will

not be considered.

Note 29: Under the Hawker Regulation, a temporary hawker licence may be issued to anapplicant as the Director of Food and Environmental Hygiene thinks fit and itpermits the licensee to hawk for such period (not exceeding one month) and forsuch purpose as the Director specifies in the licence, subject to any conditionsthat the Director thinks fits to specify in the licence. In addition to temporaryhawker licences, fixed-pitch hawker licences (covering cooked food or lightrefreshment) and itinerant hawker licences (covering frozen confectionery andmobile van) may also be issued by the Director of Food and EnvironmentalHygiene under the Hawker Regulation.

Note 30: Examples of licence conditions are: (a) the stall shall only be used for sellingcommodities specified on the relevant licence; and (b) the licence shall bedisplayed conspicuously at the stall at all times when any fund-raising saleactivity is carried on.

Note 31: For non-compliance with any licence conditions, the licensee is liable onconviction to a fine at level 2 (i.e. $5,000) and, in the case of a continuingoffence, is liable to a further fine of $100 for each day during which the offencehas continued.


— 57 —

5.3 An organisation may apply for a waiver from obtaining a temporary

hawker licence for carrying on-street selling activities in public places if the

following three conditions are satisfied:

(a) the organisation is a tax-exempt charity;

(b) the proposed activity should be of charity nature and written submission is

required to set out what specific charitable purposes the monies generated

from the activity will be spent; and

(c) necessary approvals have been obtained from the SWD for the required

PSP and from the Lands D for the land use (see para. 1.4(a) and (d)).

5.4 While applications for temporary hawker licences are processed by the

respective Hawkers Section of the 19 District Environmental Hygiene Offices

(Note 32), applications for waivers are processed by the Hawker and Market Section

of the Headquarters Division under the Environmental Hygiene Branch of the

FEHD (see Appendix G for an extract of the FEHD’s organisation chart). Table 9

shows the number of temporary hawker licences issued and waivers granted in the

period from April 2012 to September 2016.

Note 32: According to the FEHD’s internal guidelines, if an organisation submits anapplication of temporary hawker licence for the first time, policy support shouldbe sought from the Hawker and Market Section of the Headquarters Division.


— 58 —

Table 9

Number of temporary hawker licences issued and waivers granted(April 2012 to September 2016)

Year

Number of temporary hawker licences issued

Number ofwaiversgranted

Tax-exemptcharities

Other non-profit-making

organisations Total

(Note)

2012-13 222 45 267 47

2013-14 60 97 157 42

2014-15 41 79 120 37

2015-16 41 47 88 44

2016-17(Up to

September 2016)

10 38 48 20

Source: FEHD records

Note: According to the FEHD, the number of temporary hawker licences issued in 2011was about 1,200 (of which over 90% were issued to tax-exempt charities). Afterthe introduction of a limit on the number of licences issued for each fund-raisingorganisation within 12 months in July 2012 (see para. 5.5), there was asignificant decrease in the number of licences issued.

Remarks: Unlike PSPs issued by the SWD and lottery licences issued by the HAD, theFEHD does not maintain records of financial information (e.g. the gross receipt,fund-raising expenditure and net proceeds) of the fund-raising activities involvingon-street selling covered by temporary hawker licences.

5.5 New administrative measures introduced in 2012. According to the

FEHD’s application guidelines for temporary hawker licences for fund-raising

purposes, in light of media reports on some suspicious on-street fund-raising

activities in 2012 (Note 33), the FEHD conducted a review of the arrangements for

Note 33: In February 2012, a media report revealed that a tax-exempt charity had beenissued with more than 120 temporary hawker licences in a year for conductingon-street selling activities and monies received were not put into any donationboxes. Also, the organisation was not required to submit any financialstatements for the fund-raising activities involving on-street selling to the FEHD.


— 59 —

issuing temporary hawker licences for the sale of goods in public places for

fund-raising purposes. Aiming to enhance transparency and accountability of

fund-raising activities, safeguard the proper use of donations, prevent abuse of

temporary hawker licences and achieve a fair distribution of public resources among

the fund-raising organisations, the FEHD has laid down the following new

administrative measures in its application guidelines for applications received on or

after 31 July 2012:

(a) except with the approval of the Director of Food and Environmental

Hygiene (Note 34 ), the total number of temporary hawker licences

granted to each fund-raising organisation in 12 months shall not

exceed 20. Among them, no more than 2 licences shall be granted for

selling goods in the same district and no more than 4 licences shall be

granted for selling goods at hawker black spots (Note 35);

(b) the maximum licence period is five days in any two consecutive weeks;

and

(c) an organisation issued with more than 12 licences within 12 months shall

be subject to the following additional conditions for each and every

licence subsequently issued:

(i) the organisation shall prepare an income and expenditure account

relating to the fund-raising activities covered by the licence for

audit by a CPA; and

Note 34: In April 2013, the FEHD issued a set of internal guidelines on processingapplications for temporary hawker licences for fund-raising purposes exceedingthe stated limits. According to the guidelines, if an applicant can providejustifications to the satisfaction of the FEHD (e.g. the licence being applied for isfor short duration on special occasions or events), the case will be considered onits merits to see if any of the application limits can be exceeded.

Note 35: Hawker black spots refer to locations at which no prior warning would be givenby the FEHD inspectors before taking prosecution action against hawking andrelated offences. The FEHD maintains a list of hawker black spots on its website.


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(ii) the original copy of the auditor’s report shall be forwarded to the

Director of Food and Environmental Hygiene within 90 days from

the last day of the licence period, and the Director may publicise

the auditor’s report in any form or manner for public inspection.

Monitoring of fund-raising activitiesinvolving on-street selling

5.6 As stated in the FEHD’s application guidelines for temporary hawker

licences for fund-raising purposes:

(a) the Government strives to provide a friendly environment with

administrative procedures kept to a minimum to facilitate charitable

organisations to mobilise community resources for their fund-raising

activities; and

(b) nevertheless, fund-raising activities involve public interest because the

community is concerned whether these activities are properly conducted

and the donations are properly used. Therefore, there is an expectation

that the Government should exercise adequate control over fund-raising

activities.

Different administrative/licensing requirements betweenthe FEHD and other licensing departments

5.7 To ascertain the adequacies of controls over different charitable

fund-raising activities regulated by the three departments (i.e. the SWD, the HAD

and the FEHD), Audit has compared the relevant requirements in the permit or

licence conditions and/or administrative measures imposed by the three licensing

departments (see Appendix H for detailed comparison) and found the following

differences:

(a) Custody of monies received. Both the SWD and the HAD have imposed

conditions relating to the custody of the monies received during the

fund-raising activities. For example, the SWD requires a permittee to

take sufficient security measures for safe keeping of the funds raised, and

ensure that all the donation boxes are secure and properly sealed to


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prevent pilfering. However, no similar licence condition or

administrative measure has been imposed by the FEHD. In fact, the

media report in 2012 (see Note 33 to para. 5.5) had raised similar concern

but it had not been addressed in the FEHD review conducted in 2012

(see para. 5.5);

(b) Accounts for fund-raising activities. While both the SWD and the HAD

have imposed conditions relating to the preparation, audit and submission

of the income and expenditure accounts for the fund-raising activities

covered by each and every permit or licence issued, the FEHD has only

imposed similar requirement (see para. 5.5(c)) on organisations granted

with more than 12 licences within 12 months as an administrative measure

(Note 36). Since the introduction of the new administrative measure in

2012, only one organisation has been issued with more than 12 temporary

hawker licences within 12 months (see para. 5.8(a)). Also, the FEHD

has not maintained records of the actual amount of funds raised in

on-street selling activities covered by temporary hawker licences. Audit

understands that there may be concern over disproportionate

administration costs if an organisation is required to submit an audited

account for each and every temporary hawker licence given that the

amount of funds so raised is likely to be less than that of a PSP activity or

a lottery event (Note 37). Nevertheless, Audit considers that there is

room for improvement in the following areas:

Note 36: According to the FEHD, about 60% of the temporary hawker licences in 2013-14to 2015-16 were issued to other non-profit-making organisations such as tradeunions and political groups for conducting fund-raising activities which lastedfor at most a few hours. If an organisation is required to submit an auditedaccount for each and every temporary hawker licence, given that the amount offunds so raised is likely to be less than that of a PSP activity or a lottery event,there will be concern over disproportionate administration costs on the part ofthe organisation. The FEHD considers it not unreasonable to continue with theexisting requirement on audited accounts (see para. 5.5(c)) for fund-raisingactivities conducted by non-profit-making organisations. If it is considered thatthe current regime needs to be tightened up, wide recognition from thecommunity is required and consultation with relevant stakeholders is necessary.

Note 37: It is because a fund-raising activity involving on-street selling covered by atemporary hawker licence is restricted to five days and one sale location only,while there are no such restrictions imposed on PSPs or lottery licences(i.e. charitable fund-raising activities covered by a PSP or a lottery licence cantake place in multiple locations and for a much longer period).


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(i) organisations should be required to keep proper records for the

income and expenditure of on-street selling activity for each and

every licence issued and submit such records to the FEHD upon

request; and

(ii) for organisations granted with more than 12 licences within

12 months, they should be required to prepare and submit audited

accounts for the on-street selling activities covered by all

temporary hawker licences issued during the year (not only for the

13th licence onwards); and

(c) Purpose of fund-raising and use of donations. Both the SWD and the

HAD have imposed conditions requiring a permittee/licensee to inform

donors or prospective donors about the purpose of fund-raising

(e.g. displaying information about the purpose of fund-raising at the

approved locations or stating the purpose of fund-raising on lottery tickets)

and to properly account for the use of donations (e.g. submitting copies of

donation receipt if the funds raised have been donated to another charity).

However, no similar licence condition or administrative measure has been

imposed by the FEHD.

Deficiencies in implementingthe new administrative measures introduced in 2012

5.8 The FEHD uses a computer system, namely the Hawker Licensing and

Hawker Conviction System (HLCS) for processing applications of temporary

hawker licences. To implement the new application guidelines introduced in 2012,

the FEHD has enhanced the HLCS to include a function to automatically alert its

staff processing an application if: (a) the application limit has been exceeded

(see para. 5.5(a) and (b)); or (b) there is a need to impose an additional

administrative measure on the submission of audited accounts in the temporary

hawker licence (see para. 5.5(c)). Audit analysed the HLCS records relating to

applications submitted on or after 31 July 2012 and approved up to 30 September

2016 (involving 496 applications submitted by 104 organisations) and found that:

(a) although 16 temporary hawker licences had been issued to an organisation

in the 12-month period from mid-December 2012 to mid-December 2013,

the concerned organisation had not submitted the audited accounts for the


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last 4 licences issued and the FEHD had not taken any follow-up action;

and

(b) the FEHD had granted more than 2 licences in the same district within

12 months to 14 organisations without documenting the justifications for

approving the exceptional cases (see Note 34 to para. 5.5(a)).

In Audit’s view, the FEHD needs to take measures to ensure compliance with the

administrative measure on submission of audited accounts. The FEHD also needs to

remind its staff to document the justifications for issuing temporary hawker licences

in exceptional cases.

Deficiencies in inspections

5.9 According to the FEHD’s internal guidelines, the inspectors of the

District Environmental Hygiene Offices conduct inspections at the approved sale

locations covered by temporary hawker licences at least twice a day to check

licensees’ compliance with licence conditions (e.g. only selling commodities

specified in the licences). They are also responsible for carrying out daily

inspections on on-street selling activities covered by waivers to detect any

irregularities.

5.10 Audit examined the inspection records of three District Environmental

Hygiene Offices (which had the highest number of approved on-street selling

activities under temporary hawker licences in each of the three regions,

i.e. Hong Kong Island, Kowloon and the New Territories) from April 2014 to

December 2016. Of the 2,508 required inspections (including 242 inspections for

50 temporary hawker licences issued to 30 organisations and 2,266 inspections for

72 waivers granted to 16 organisations):

(a) 139 (6%) inspections had not been conducted mainly due to delays in

notifying the FEHD’s inspectors. According to the FEHD, one of the

reasons for the delays was that the organisations had submitted the

applications for waivers at a very short notice. Sometimes, the FEHD

was given less than one working day to process the application. Given

the limited time to process the application, the FEHD had genuine

difficulty in timely notifying frontline staff to conduct inspection; and


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(b) for 241 (10%) inspections, the inspection records were either missing or

inadequate to show whether inspections had been conducted.

The FEHD needs to take measures to ensure that inspections on compliance with the

licence conditions are carried out in accordance with laid-down guidelines (such as

setting a timeline for submission of applications for waiver) and inspection records

are properly maintained.

5.11 For the remaining 2,128 (84%) inspections conducted, Audit found that:

(a) in 1,251 (59%) inspections, the records revealed that no approved

on-street selling activities had been carried out in the approved locations

(i.e. “no-show” cases), which was similar to the results of the random

on-site inspections on PSP fund-raising activities conducted by the SWD

(see para. 3.14(a)); and

(b) in 14 (1%) inspections, selling activities outside the approved time period

were found, contrary to the licence condition. However, no record was

available to show that any regulatory actions had been taken in respect of

the non-compliance identified.

Regarding (a) above, the FEHD currently does not take any follow-up actions on the

“no-show” cases (e.g. sharing of enforcement information with the SWD as a large

number of “no-show” cases (Note 38) were related to on-street selling activities

covered by waivers issued by the FEHD to PSP permittees). In Audit’s view, the

high percentage of “no-show” cases indicates an ineffective use of public resources

because use of public places (especially those with high pedestrian flow) for

charitable fund-raising activities was in high demand. Based on the sample check of

65 applications received by the Lands D for temporary occupation of unleased land

for setting up counters or booths in 2,109 locations for fund-raising purposes in

2016, Audit found that the applications for 1,059 (50%) locations had been rejected

Note 38: Of the 1,251 inspections mentioned in paragraph 5.11(a), 1,190 (95%) wererelated to on-street selling activities covered by waivers issued to 15 PSPpermittees. Among the inspected cases, 14 (93%) permittees had beenrepeatedly found not carrying out any fund-raising activities during the time ofinspection, e.g. no approved selling activities were found in 19 (76%) of25 inspections in one case.


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and one of the common reasons was that the locations applied for had already been

allocated to another organisation. The FEHD needs to liaise with relevant

departments (i.e. the SWD and the Lands D) on the feasibility of sharing of

enforcement information and taking concerted actions on repeated “no-show” cases

(see relevant audit recommendation in para. 3.25(c)). Regarding (b), the FEHD

needs to take regulatory actions on any cases of non-compliance.

Lack of one-stop service

for fund-raising activities involving on-street selling

5.12 According to the LRC Report (see para. 1.9), the different licensing

authorities (e.g. the SWD and the FEHD for processing permits/licences and the

Lands D for approving temporary occupation of unleased land to set up counters or

booths) currently appear to be lacking coordination in dealing with applications for

charitable fund-raising licences and permits (see para. 1.4). As a result, sometimes

an organisation needs to seek approvals from different departments for the same

charitable fund-raising activity. For example, the organisation needs to seek

approvals from:

(a) the FEHD for the issue of a temporary hawker licence or a waiver from

obtaining the licence for sale of commodities on streets;

(b) the SWD for the issue of a PSP if the items sold are badges, tokens or

similar articles as defined in the Summary Offences Ordinance; and

(c) the Lands D for the approval of temporary occupation of unleased land

for the setting up of a counter or booth.

Owing to the lack of one-stop service, the need to seek multiple approvals for a

fund-raising activity involving the same on-street selling event duplicates regulatory

efforts, and creates extra workload and inconvenience to charitable organisations.

5.13 Audit has also noted that in some cases, the organisations might have

breached the relevant legislation for not having sought all the required approvals for

fund-raising activities involving on-street selling, as follows:


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(a) of 42 PSPs issued by the SWD from January to September 2016 involving

selling activities in public streets, 15 (36%) permittees had not applied to

the FEHD for waivers from obtaining the temporary hawker licences,

which might have constituted a breach of the Hawker Regulation. In this

connection, Audit has noted that the requirement to apply for a waiver of

temporary hawker licence by a permittee is not mentioned in the

FEHD’s guidelines provided to the public (Note 39). Besides, there is

also no established mechanism for the SWD to notify the FEHD on the

approvals of PSPs involving on-street selling activities which may require

the issue of a waiver of temporary hawker licence; and

(b) of 50 temporary hawker licences issued from April 2014 to

December 2016 selected for Audit’s examination, 32 (64%) licensees had

not sought the Lands D’s approval for temporary occupation of unleased

land for setting up counters or booths for the fund-raising activities.

Similar to (a) above, the requirement to apply for the Lands D’s approval

of temporary occupation of unleased land is also not mentioned in the

FEHD’s guidelines provided to the public. Audit notes that, in processing

an application for a temporary hawker licence, the FEHD will seek

comments from various departments, including the Lands D, and issue a

licence to the applicant if no objections are received from the

departments. In response to Audit’s enquiry, the Lands D in February

2017 said that upon the FEHD’s requests for comments on temporary

hawker licence applications, the Lands D would first check and confirm

the land status of the concerned locations. If the sites situated on unleased

and unallocated land and were available for the concerned selling

activities, the Lands D would return a “no objection” reply to the FEHD

for its further processing of the applications, i.e. separate approval for

temporary occupation was not required from the Lands D.

Note 39: The current guidelines only inform the applicants to seek advice from other B/Dsincluding the SWD and the HAB as to whether a permit under section 4(17) ofthe Summary Offences Ordinance is required for the concerned fund-raisingactivities.


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In Audit’s view, the FEHD should work in collaboration with the SWD and the

Lands D to facilitate applicants in meeting related licensing requirements for

fund-raising activities involving on-street selling in public places (e.g. providing

information about locations available for fund-raising activities, publicising the

waiver arrangement and formalising the practice of exempting applicants of

temporary hawker licences from obtaining separate approvals from the Lands D).

In addition, there is a need for the three departments to consider providing a

one-stop service to streamline the processing and approvals of such activities.


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5.14 Audit has recommended that the Director of Food and Environmental

Hygiene should:

(a) consider improving administrative measures for monitoring on-street

selling activities for charitable fund-raising purposes covered by

temporary hawker licences (see para. 5.7);

(b) take measures to ensure licensees’ compliance with the administrative

measure on submission of audited accounts upon issue of more than

12 temporary hawker licences within 12 months;

(c) remind FEHD staff to document the justifications for issuing

temporary hawker licences in exceptional cases;

(d) take measures to ensure that:

(i) inspections on compliance with the licence conditions are

carried out in accordance with laid-down guidelines;

(ii) inspection records are properly maintained; and

(iii) regulatory actions are taken on cases of non-compliance; and

(e) work in collaboration with the Director of Social Welfare and the

Director of Lands to:

(i) facilitate applicants in meeting related licensing requirements

for fund-raising activities involving on-street selling in public

places; and

(ii) consider providing a one-stop service to streamline the

processing and approvals of fund-raising activities involving

on-street selling.


— 69 —



the audit recommendations. She has said that:

(a) consistent with the object of the Public Health and Municipal Services

Ordinance, the main purpose of issuing temporary hawker licences is to

regulate the sale of commodities in public places in a hygienic manner as

well as to ensure that the hawking activities will not cause nuisances such

as obstruction to public places. The licence conditions stipulate that the

licence is issued to the licensee to raise funds through the sale of

commodities where a customer is paying the seller money in exchange for

an actual commodity, i.e. a business transaction actually takes place. The

FEHD opines that the sale of commodities is normal business transaction

which should be distinguished from charitable fund-raising activities

which do not involve a commercial transaction;

(b) the FEHD acknowledges the public’s views for better transparency and

accountability for fund-raising activities for charitable purpose, including

those involving on-street selling of commodities. In this connection, with

reference to the best practices specified in the Reference Guide, the

FEHD will consider incorporating as far as practicable further

administrative measures comparable to those conditions currently imposed

by the SWD and the HAD into temporary hawker licences issued to

charitable organisations, having due regard to factors such as the nature,

scale and duration of the fund-raising activities, proportionality of the

requirements, cost of compliance, etc.;

(c) for the audit recommendation in paragraph 5.14(a), the FEHD is actively

looking into incorporating additional measures (such as ensuring the safe

custody of the monies received) into the licence conditions and/or

administrative measures with a view to enhancing transparency and

accountability of charitable fund-raising activities involving on-street

selling of commodities by tax-exempt charities. The FEHD will also

explore how best to enhance the financial accountability of charitable

fund-raising activities covered by temporary hawker licences, with due

regard to the factors mentioned in (b). In the process, the FEHD will

seek to strike a reasonable balance between the need for controlling

on-street hawking activities and the need for addressing public concerns

on fund-raising activities;


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(d) for the audit recommendation in paragraph 5.14(b), the FEHD will

actively consider introducing a new administrative measure, i.e. not

processing any subsequent application from any organisation until the

audited accounts for the previous fund-raising activities are submitted as

required. The FEHD believes that this new measure will provide

incentive for licensees to comply with the requirement on submission of

audited accounts;

(e) for the audit recommendation in paragraph 5.14(c), the FEHD has

reminded staff to properly document the justifications for approving the

exceptional cases;

(f) for the audit recommendation in paragraph 5.14(d), the FEHD has

reminded staff to conduct inspections according to the operating time as

specified on the licences and to keep proper inspection records. They

have been reminded to take appropriate follow-up actions including

enforcement actions against illegal hawking activities in accordance with

the established departmental guidelines;

(g) regarding the “no-show” cases mentioned in paragraph 5.11(a), she

generally agrees with the related audit recommendation in

paragraph 3.25(c) (see para. 3.27). As most of the “no-show” cases were

related to fund-raising activities covered by waivers issued to

organisations that had obtained PSPs from the SWD, the FEHD will

explore with the SWD the feasibility of imposing sanction to forestall

frivolous applications for PSP, tackling the problem at source; and

(h) for the audit recommendation in paragraph 5.14(e), the FEHD stands

ready to explore with the SWD and the Lands D means to enhance

communication among the departments to streamline application

processing, referrals and approvals. The FEHD will update its guidelines:

(i) to require PSP permittees involving on-street selling activities to

apply for a waiver of temporary hawker licence; and

(ii) to specify the requirement to apply for the Lands D’s approval for

occupation of unleased land in connection with the processing

applications for temporary hawker licence.

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PART 6: WAY FORWARD

6.1 This PART examines the way forward on the monitoring of charitable

fund-raising activities, focusing on the Government’s follow-up actions on the

LRC Report on Charities.


6.2 According to the 2013 LRC Report, the existing regulatory framework of

charities has the following deficiencies:

(a) Out-dated definition of charity. The definition of “charitable purpose” in

Hong Kong is not based upon a clear statutory definition, but upon the

common law interpretation of English legislation dating back hundreds of

years. The leading case authority of 1891 on the definition of charity

which enunciated the four principal divisions of charitable purpose

(namely the relief of poverty, the advancement of education, the

advancement of religion and any other purposes beneficial to the

community not falling under any of these three heads) is still applied

today. Many of the more recently developed charitable purposes

necessarily fall within the vague “any other purpose” classification. This

has resulted in evolving case law on charitable purposes which is

confusing and unclear;

(b) Lack of a coherent system for the registration of charities. While the

IRD’s list of tax-exempt charities does not constitute a formal “register”

of charitable organisations, there may be a danger that the public (and

hence potential charity donors) may perceive that the recognition of tax

exemption status and inclusion on the list of tax-exempt charities confers

on those charities “a cloak of respectability and the semblance of official

sanction not intended by the Inland Revenue Ordinance”;

(c) Inconsistent standards or requirements on governance, accounting and

reporting by charities. Charities of different legal forms established

under different ordinances can be subject to different statutory controls.

For example, charitable organisations established under the Companies

Ordinance are required to prepare audited accounts in order to fulfil

Way forward

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requirements under that Ordinance. However, this is not the case for

charitable organisations established as societies registered under the

Societies Ordinance. As for charities which are neither statutory nor

subvented, they may operate autonomously under their own governing

bodies and according to their own rules and regulations; and

(d) Limited control of charitable fund-raising activities. Government

oversight of the fund-raising activities of charities is confined specifically

to those activities requiring the permission of the SWD, the HAD and the

FEHD, such as flag days, lotteries and on-street selling. For other forms

of fund-raising activity such as charity auctions, balls, concerts, dinners,

or requests for donations by mail or through advertisements, no

government oversight applies.

Recommendations of the LRC Report

6.3 After conducting a detailed study, including analysing the charities’

regimes in a number of overseas jurisdictions and seeking views and comments from

the public in 2011, the LRC issued a Report on Charities in December 2013. The

LRC Report concluded that:

(a) it should be a long-term goal that a charity commission or a centralised

regulatory authority for charities should be established for Hong Kong.

Given the lack of general consensus among the public on this issue

(Note 40), the LRC believed that the community needed more time to

discuss the concept of a charity commission; and

(b) in the interim period, expedient administrative measures should be

implemented to improve the transparency and accountability of charities

and thus provide better safeguards to the public. In this connection, the

LRC made a total of 18 recommendations, which included, among others,

imposing certain filing requirements in applications for charitable

Note 40: According to the LRC Report, the number of respondents not in support of therecommendation to set up a charity commission greatly out-numbered those insupport of the recommendation. However, the majority of the respondentsagreed that it was important for charities to be more transparent andaccountable to the community and there was also consensus on the need tosafeguard the rights of donors.

Way forward

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fund-raising licences or permits, setting up centralised telephone hotline

for public enquiries and complaints in relation to charitable fund-raising

activities, requiring charitable organisations to display their registration

numbers during charitable fund-raising activities, and engaging in more

public education on matters relating to charitable fund-raising activities

(see Appendix I for details).

Government’s follow-up actions onthe Law Reform Commission’s recommendations

Government’s guidelines

6.4 In October 2011, the Director of Administration issued a General Circular

setting out the guidelines for B/Ds when considering the LRC proposals. According

to the guidelines (which are still in force in accordance with the reissued General

Circular in 2016), it is in the interests of all concerned that a decision on whether or

not to implement the LRC’s proposals for reform should be taken within a

reasonable timeframe. Delay may lead to problems such as flaws in the legal

system identified by the objective and high-powered LRC study remain not

corrected and the validity of the detailed research and consultation carried out by the

LRC diminishes, as it becomes out of date. The Government has therefore agreed,

among others, that:

(a) when a consultation paper is issued by the LRC, the Government should

at that stage decide (and resolve should there be any disagreement) which

bureau (or bureaux) will take up the primary responsibility for

consideration/implementation of the final report and should notify the

LRC; and

(b) B/Ds having policy responsibility in respect of any LRC Report should:

(i) give full consideration to its recommendations and provide a

detailed public response (setting out which recommendations they

accept, reject or intend to implement in modified form) to the

Secretary for Justice (as Chairman of the LRC) as soon as

practicable;

(ii) in any event, provide at least an interim response within

six months of publication of the report which sets out a clear

Way forward

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timetable for completion of the detailed responses and the steps

taken so far; and

(iii) provide a detailed public response to the Secretary for Justice

within 12 months of its publication, unless otherwise agreed by

him as Chairman of the LRC.

6.5 In December 2011, during the consultation stage of the LRC’s proposals,

the Secretary for Justice as Chairman of the LRC invited the Chief Secretary for

Administration to designate a bureau to take primary responsibility for

LRC’s proposals given that the proposals touched on areas which fell within the

policy responsibilities of several bureaux. In May 2012, the Chief Secretary

designated the HAB as the responsible bureau for coordinating inputs from relevant

B/Ds for formulating a response to the LRC’s recommendations for the

Government’s consideration.

Slow progress in responding to the LRC’s recommendations

6.6 For three years since the issue of the LRC Report on Charities in

December 2013, the HAB had provided similar responses to the Secretary for

Justice for incorporation in his annual report on implementation of LRC Reports to

the LegCo Panel on the Administration of Justice and Legal Services. The 2016

response stated that:

“The recommendations of the LRC Report on Charities are

relevant to the purviews of various Government bureaux and

departments. Given that the recommendations will have

significant implications on the operation of the charities in

Hong Kong, the Government needs to study in detail and

carefully consider the recommendations. The Bureau (HAB)

is coordinating comments from relevant bureaux and

departments for consideration of the way forward.”

6.7 In May 2016, the Secretary for Justice wrote to the HAB conveying the

strong concerns of some members of the former LRC Charities Sub-committee

about the lack of progress in implementing the LRC’s recommendations. At the

meeting of the LegCo Panel on Welfare Services of April 2016, the Chairman also

Way forward

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expressed similar view that since the release of the LRC Report, the Government

had not made any progress in taking forward the LRC’s recommendations.

6.8 Audit reviewed the HAB’s records to examine how it had performed its

coordinating role and found the following issues:

(a) Inadequacies in internal consultation. Following the publication of the

LRC Report in December 2013, the HAB commenced the internal

consultation process in January 2014 by writing to nine B/Ds and received

their feedback from February to April 2014. However, it only

consolidated the views into a preliminary assessment paper in June 2015.

Since then, the HAB convened two inter-departmental meetings in

mid-August 2015 and October 2016 respectively; and

(b) Belated consideration of a recommendation. One of the

recommendations of the LRC Report is the introduction of legislation

along the lines of the English model to solve the problems which arise

when a charitable gift fails because the original purposes of such gift, in

whole or in part, cannot be carried out. The HAB had not made

reference to this recommendation in its correspondence with the B/Ds

when it first solicited their views in January 2014. The HAB only invited

views of the DoJ on the recommendation in September 2016.

6.9 In line with the 2016 General Circular requirements, the HAB needs to

expedite the consultation with relevant B/Ds with a view to formulating a response

to all the recommendations of the LRC Report.

6.10 In considering the way forward in formulating a response to the

LRC’s recommendations, there is a need to take into account the areas for

improvement identified by Audit in earlier PARTs of this Audit Report which are

complementary to the LRC’s recommendations, as follows:

(a) LRC recommendation: facilitation of good practice. In PART 2, Audit

has found that there is a need to step up promotion efforts to encourage

and recognise more charitable organisations to adopt the best practices for

organising charitable fund-raising activities to enhance their transparency

and accountability;

Way forward

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(b) LRC recommendation: information available to the public. In PARTs 3

and 4, Audit has found that there is room for the SWD and the HAD to

facilitate public access to the financial information of the fund-raising

activities under their purview. In PART 5, Audit has found that the

FEHD needs to step up the administrative requirements on licensees to

more fully account for their charitable fund-raising activities; and

(c) LRC recommendation: setting up a platform of coordination. In

PARTs 3 and 5, Audit has found that the SWD, the FEHD and the

Lands D need to improve their coordination (e.g. exploring the feasibility

of sharing of enforcement information and taking concerted actions on

repeated “no-show” cases, and facilitating applicants in meeting related

licensing requirements for fund-raising activities involving on-street

selling).


6.11 Audit has recommended that the Secretary for Home Affairs should:

(a) expedite the consultation with relevant B/Ds with a view to

formulating a response to all the recommendations of the LRC Report;

and

(b) take into account the areas for improvement identified in this

Audit Report (such as enhancing the transparency and accountability

of charitable fund-raising activities, and improving the coordination

of the licensing departments in their licensing and monitoring of these

activities), in coordinating inputs from relevant B/Ds for formulating

a response to the LRC’s recommendations for the Government’s

consideration.


6.12 The Secretary for Home Affairs accepts the audit recommendations. He

has said that the HAB will take into consideration the areas for improvement as

identified by Audit and continue to work with relevant B/Ds in coordinating their

inputs for formulating a response to the recommendations of the LRC on charities

for the Government’s consideration.

Appendix A(paras. 1.7(a), 2.6,and 3.15 refer)

— 77 —

Reference Guide on Best Practicesfor Charitable Fund-raising Activities (extract)

The major clauses of the Reference Guide relating to transparency and

accountability of fund-raising activities are shown below:

Donors’ rights

(a) all donors are entitled to receive official receipts for the money donated;

(b) all fund-raising activities shall disclose the organisation’s name and the purpose

for which funds are requested. Printed materials seeking donations shall also

include its address, website or other contact information;

(c) donors/prospective donors are entitled to examine the following documents

promptly upon request: organisation’s constitutional documents, recent annual

report and audited financial statements, document confirming its status as a

tax-exempt charity and a list of names of the members of the governing board;

Fund-raising practices

(d) when conducting fund-raising activities, the organisation should accurately

describe its background, activities, service details and the intended use of the

donated funds;

(e) the organisation should ensure that the volunteers, employees and hired solicitors

will act with fairness, integrity, and in accordance with all applicable laws and

regulations;

(f) paid fund-raisers should be compensated by a salary, and not be paid

commissions or other payments based on the number of donors secured or

amount received;

Appendix A(Cont’d)(paras. 1.7(a), 2.6,and 3.15 refer)

— 78 —

Financial accountability

(g) the organisation’s financial affairs shall be conducted in a responsible manner;

(h) annual financial reports shall disclose information which includes the total

revenue and total expenses of fund-raising events, and total expenditure of the

charitable activities, and separately identify the revenue generated from

individual project/event involving an appeal to the public;

(i) it is a good practice to make financial statements of individual projects available

to the public, disclosing information which includes the total revenue and total

expenses of fund-raising events, and the uses of net proceeds; and

(j) no more should be spent on administration and fund-raising than is required to

ensure effective management and resource development. A charitable

organisation should disclose the ratio of costs to total revenue for donors’

reference, and disclose the return and expenses figures for high value and

well-defined projects.

Source: SWD records

Appendix B(paras. 2.6 and3.16 refer)

— 79 —

Guidance Note on Internal Financial Controlsfor Charitable Fund-raising Activities (extract)

The Guidance Note proposes some basic controls to be considered by charitable

fund-raising organisations with a view to ensuring that income generated from charitable

fund-raising activities is spent for the designated purpose and that such income and

expenditure are properly documented. The more important ones are shown below:

(a) charitable fund-raising organisations should make regular checks and surprise

inspections to ensure that records are being accurately maintained, and that there

are no discrepancies in the accounting records;

(b) for flag days, collection bags/boxes should be properly numbered and sealed, and

collectors should make signature upon receipt and return of collection bag/boxes;

(c) for collection boxes placed in stationed counters, boxes should be regularly

opened and contents should be counted and recorded in the presence of at least

two people authorised by the agency management;

(d) for charity sale of commodities, the sale proceeds should be regularly counted

and recorded in the presence of at least two people authorised by the charitable

fund-raising organisation;

(e) for charity walk receiving donations after the event, appeal for donations through

advertisements, telephone calls, letters and leaflets, all incoming cheques and

cash should be recorded immediately and entries verified by someone other than

the person who has made the entry;

(f) for charity ball, concert and film premiere, issue of official receipt signed by

collectors should be made for each transaction of ticket sale; and

(g) for charity show through the mass media, the pledged donation made by donors

should be properly recorded. Should cancellation of the pledged donation be

required afterwards, it has to be verified by someone other than the person who

has made the entry.

Source: SWD records

Appendix C(para. 3.2 refers)

— 80 —

Social Welfare Department:Organisation chart (extract)

(31 December 2016)

Source: SWD records

Subventions Branch

Director of Social Welfare

Deputy Director of Social Welfare(Services)

Corporate Planning andCo-ordination Section

ArchitecturalSection

Project PlanningUnit

Lotteries FundProject Section

SubventionsSection

Appendix D(para. 3.20(b) refers)

— 81 —

Major expenses of 45 public subscription permit activitiesorganised by 8 permittees with percentages of

expenses to gross proceeds exceeding 40%

PermitteeGross

proceedsinvolved

($)

Expenses to gross proceeds percentage

Fund-raisercost

Transportcost

Venuecost

Cost of itemssold Others Total

A 2,367,000 1% 1% 65% – 9% 76%

B 97,000 38% 28% – – 4% 70%

C 1,130,000 44% 15% – – 8% 67%

D 845,000 8% 2% 51% – 4% 65%

E 106,000 34% 23% – – 3% 60%

F 310,000 57% – 1% – 1% 59%

G 2,981,000 16% 8% – 26% 1% 51%

H 52,000 0% 7% – 27% 7% 41%


Appendix E(para. 3.22 refers)

— 82 —

Sample of the income and expenditure account for ageneral charitable fund-raising activitycovered by a public subscription permit

[Registered Name of the Permittee]

Income and Expenditure Account

[Name of Activity] - [Approved Date / Period of Activity]

Public Subscription Permit No. 2013/XXX/1

Income HK$

Charity sales XXX

Donations received XXX

XXX

Expenditure

Advertising XXX

Allowances/souvenirs for volunteers XXX

Auditors’ remuneration/professional fee XXX

Salaries for fundraisers XXX

Printing and stationery XXX

Transportation XXX

Miscellaneous XXX

XXX

Excess of income over expenditure XXX

Approved and authorised for issue by the Board of Directors on [DATE].

Source: SWD records

Appendix F(para. 4.2 refers)

— 83 —

Home Affairs Department:Organisation chart (extract)

(31 December 2016)

Source: HAD records

Director of Home Affairs

Deputy Director of Home Affairs (2)

Office of the Licensing Authority(Chief Officer)

Entertainment Licensing and Administration Unit(Chief Executive Officer)

Entertainment Licensing Team

Miscellaneous Licensing Sub-team(Senior Licensing Officer)

Division IV

Appendix G(para. 5.4 refers)

— 84 —

Food and Environmental Hygiene Department:Organisation chart (extract)

(31 December 2016)

Source: FEHD records

Director ofFood and Environmental Hygiene

Deputy Director(Environmental Hygiene)

Headquarters Division Operations Divisions

Hawker and Market Section(Senior Superintendent)

District Enviromental HygieneOffices

Hawkers Sections(Senior Health Inspectors)

Appendix H(para. 5.7 refers)

— 85 —

Comparison of key permit/licence conditions and administrative measuresimposed by the three licensing departments

Aspect covered

Extracts of the relevant condition and administrative measure

SWD HAD FEHD

PSP for generalcharitable fund-raising

activitiesLottery licence

Temporary hawkerlicence

(a) Track recordrequirement

The applicant must haveat least three years’ trackrecord of charitableactivities

If this is the firstapplication, the applicant isrequired to submit auditedannual financial statementsfor the past three years andthree years’ worth of trackrecords of activities/charitable works

Not available

(b) Disclosure offund-raisingpurpose

The permittee shalldisplay its serviceinformation prominentlyat the approved locationsto facilitate publicunderstanding of theorganiser and thepurposes of fund-raising

Lottery tickets shouldcontain a statement statingclearly the intended use ofthe net lottery proceeds

Not available

(c) Custody offunds raised

The permittee shalltake sufficient securitymeasures for the safekeeping of the fundsraised, and ensure that allthe donation boxes aresecure and properlysealed

Lottery organisers mustensure the proper collectionand counting of alldonations received

Not available

(d) Preparation ofauditedaccounts

The permittee is requiredto prepare an account foraudit by a CPA

The licensee shall preparean account and obtain awritten report made by aCPA

Organisations issuedwith more than12 licences within12 months shallprepare an accountfor each and everyof the licencessubsequently issuedfor audit by a CPA

(e) Submission ofauditedaccounts

Within 90 days of the lastevent day

Within 90 days of the dateof the draw of the lottery

Within 90 days of thelast day of thelicence period

Appendix H(Cont’d)(para. 5.7 refers)

— 86 —

Aspect covered

Extracts of the relevant condition and administrative measure

SWD HAD FEHD

PSP for generalcharitable fund-raising

activitiesLottery licence

Temporary hawkerlicence

(f) Standard ofauditedaccounts

The audited reportprepared by a CPA inaccordance with PracticeNote 850 issued by theHKICPA is deemedacceptable

The CPA is required to givean assurance that theaccount is properly preparedfrom the licensee’ books andrecords and no matter hascome to the CPA’s attentionwhich indicates that theaccount does not accuratelyreflect all the moneyscollected or received fromthe sale of lottery tickets andall the disbursements made

Not available

(g) Publication ofauditedaccountsby theorganisation

The audited report maybe published innewspaper, organisation’snewsletter or websites(for at least 6 months inthe case of website)

Not available Not available

(h) Funds raiseddonated tootherorganisation

The permittee is requiredto submit a copy of thereceipt from theorganisation or institution

The licensee shall submitcopies of receipt ofdonations from thebeneficiaries

Not available

(i) Funds raisedused formeeting theoperationexpenses of theorganisation

Not available The licensee shall submitan audited annual financialstatement of theorganisation, which shouldshow the income andexpenditure of the lottery,and the whereabouts of thenet proceeds in meeting theapproved purpose(s) of thelottery event

Not available

(j) Restriction onfund-raisingexpenses

Not available Administrative expensesshould not exceed 20% ofthe gross proceeds receivedfrom lottery tickets sold

Not available

Source: SWD, HAD and FEHD records

Appendix I(para. 6.3(b) refers)

— 87 —

Recommendations of the Law Reform Commission Report

The LRC Report contained 18 recommendations on charities, covering aspects on

definition and registration of charities, facilitation of good practice, financial reporting by

charities, and filing requirements (and requirement of display of registration number) for

charitable fund-raising activities. The 18 recommendations are summarised below:

Statutory definition

(a) there should be a clear statutory definition of what constitutes a charitable

purpose;

Categories of charitable purpose

(b) the statutory definition of what constitutes a charitable purpose that is exclusively

charitable should include 14 heads and all of these heads of charitable purpose

must be also for the public benefit;

Legal forms of charitable organisations

(c) the current system of allowing a variety of legal forms of charitable organisations

to exist should continue;

Registration of charitable organisations

(d) all charitable organisations which solicit from the public for the donation of cash

or its equivalent; and/or have sought tax exemption should be subject to the

requirement of registration. The list of registered charitable organisations should

be established and maintained by a B/D and be available for public inspection;

Financial reporting standard

(e) a specifically formulated financial reporting standard should be adopted for

charities in Hong Kong;

Filing requirements

(f) certain filing requirements should be imposed on charitable organisations in their

applications for charitable fund-raising licences or permits;

Appendix I(Cont’d)(para. 6.3(b) refers)

— 88 —

Information available to the public

(g) the Government should ensure that tax-exempt charities make information about

their operations available to the public by publishing certain documents, such as

their financial statements and activities’ reports, on their websites;

Enforcement action for non-compliance with filing and disclosure requirements

(h) the Government should designate a B/D to be responsible for enforcement action

in cases of non-compliance with the filing and disclosure requirements;

Standardised application form and conditions

(i) a standardised application form setting out some common basic requirements

(including the requirement for disclosure of certain information about the charity)

should be adopted in respect of different types of charitable fund-raising licence

or permit applications and the existing function of the information portal under

the “GovHK” website should be enhanced by making the information available

for public inspection;

Centralised hotline

(j) the function of the Government’s existing 1823 Call Centre should be enhanced

or a new telephone hotline should be set up for answering public enquiries and

receiving complaints in relation to charitable fund-raising activities;

Display of registration number

(k) the registration number of charitable organisations involved in all forms of

charitable fund-raising activities (including those via the Internet or other

electronic means and involving face-to-face solicitation of pledges from donors

for regular donations) should be prominently displayed on, among others, any

related documents, webpage, message transmitted by electronic means or any

means through which appeals for charitable donations are made (as the case may

be);


— 89 —

Facilitation of good practice

(l) charitable organisations should be encouraged to work with

institutions/organisations to facilitate good practice and to improve co-operation

between charitable organisations and the Government. Good practice guidelines

should be issued by a coordinating B/D;

Public education

(m) the Government, through the coordinated efforts of B/Ds, should engage in more

public education on how to become a smart donor and on matters relating to

charitable fund-raising activities;

Setting up a platform of coordination

(n) the Government should set up a platform of coordination in dealing with

applications for charitable fund-raising licences among the different departments

responsible for the licensing of charitable fund-raising activities;

Allocation of more resources

(o) more resources should be allocated to Government departments involved in the

licensing of charitable fund-raising activities in order to enhance their role in

relation to the monitoring of charitable fund-raising activities;

More frequent reviews by the IRD

(p) the IRD should conduct more frequent reviews of tax-exempt charities to

ascertain whether the activities of these charities are compatible with their

charitable objects and more resources should be allocated to the IRD for such

purpose;


— 90 —

Cy-près doctrine

(q) the Government should introduce legislation along the lines of the English

statutory model of the cy-près doctrine (i.e. to solve the problems which arise

when a charitable gift fails because the original purposes of such gift, in whole or

in part, cannot be carried out) so as to provide a statutory basis for the doctrine in

Hong Kong and to broaden the scope of its application; and

Setting up of a charity commission

(r) a charity commission should not be set up at this stage. It should be a long-term

goal to set up a charity commission or a centralised regulatory authority upon

review of the impact and effect of the implementation of the other

recommendations made in the LRC Report.

Source: LRC Report

Appendix J

— 91 —

Acronyms and abbreviations

Audit Audit Commission

B/Ds Bureaux/departments

CPA Certified Public Accountant

DoJ Department of Justice

FEHD Food and Environmental Hygiene Department

HAB Home Affairs Bureau

HAD Home Affairs Department

HKICPA Hong Kong Institute of Certified Public Accountants

HKPF Hong Kong Police Force

HLCS Hawker Licensing and Hawker Conviction System

IRD Inland Revenue Department

IRO Inland Revenue Ordinance

Lands D Lands Department

LegCo Legislative Council

LFAC Lotteries Fund Advisory Committee

LIS Licensing Information System

LRC Law Reform Commission

OGCIO Office of the Government Chief Information Officer

PSP Public subscription permit

SWD Social Welfare Department